2007 Annual Report

{2007} National Credit Union Administration {annual report} NCUA’s Role 1775 Duke Street Alexandria, VA, 22314-3428 703-518-6300 http://www.ncua.gov The National Credit Union Administration (NCUA) is the independent federal agency that charters and supervises federal credit unions throughout the United States and its territories. NCUA administers the 1934 “Federal Credit Union Act” created by Congress to serve, protect and promote a safe, stable national system of cooperative financial institutions that encourage thrift and offer a source of credit for their members. With the backing of the full faith and credit of the U.S. government, NCUA administers the National Credit Union Share Insurance Fund (NCUSIF), which insures the savings of nearly 87 million account holders in all federal credit unions and the substantial majority of state-chartered credit unions. NCUA is supported by the credit unions it supervises and insures through fees submitted to the NCUA Operating Fund and NCUSIF. NCUA also administers the Central Liquidity Facility (CLF) and the Community Development Revolving Loan Fund (CDRLF). The CLF serves as a back-up lender for member credit unions, while the CDRLF provides loans and technical assistance grants to stimulate economic activities in communities served by low-income credit unions. The 2007 NCUA Annual Report is NCUA’s official report to the President and the Congress of the United States. The report contains the financial statements of the NCUA Operating Fund, NCUSIF, CDRLF and CLF. {ncua’s mission is to ensure a safe and sound credit union system} NCUA Board NCUA has a three-member board appointed by the President of the United States and confirmed by the Senate. No more than two board members are from the same political party, and members serve staggered sixyear terms. The NCUA board normally meets monthly, except August, in open session in Alexandria, Virginia. Chairman JoAnn Johnson was nominated by President George W. Bush and confirmed by the U.S. Senate March 22, 2002, to a Republican seat on the NCUA Board. Iowa State Senator Johnson is a former educator, athletic coach and community activist. She was elected to office in 1994 and chaired both the Iowa Senate Commerce Committee and Ways and Means Committee before resigning to join NCUA. Mrs. Johnson was designated NCUA chairman May 3, 2004. Her term expired August 2, 2007. Vice Chairman Rodney E. Hood was appointed by President George W. Bush to a seat on the NCUA Board November 15, 2005. His term expires April 10, 2009. Mr. Hood joined the NCUA Board after serving the Department of Agriculture as USDA Associate Administrator for Rural Development’s Housing Program addressing the housing needs of rural America. Vice Chairman Hood has nearly two decades of experience in affordable housing and community development. Board Member Christiane Gigi Hyland was appointed by President George W. Bush to a seat on the NCUA Board effective November 18, 2005. Her term expires August 2, 2011. When nominated to the NCUA Board, she served as Senior Vice President, General Counsel for Empire Corporate Federal Credit Union in Albany, New York. She previously served concurrently as Vice President, Corporate Credit Union Relations of the Credit Union National Association, Inc. and Executive Director for the Association of Corporate Credit Unions. 2 NCUA Board 2007 Financial Highlights NCUA Operating Fund Operating fee revenue Other income Total revenue Expense budget Actual expenses Expenses transferred to Share Insurance Fund Operating Fund expense Net income Operating Fund balance $64.0 2.5 66.5 152.0 145.9 77.8 68.1 (1.7) 22.4 million million million million million million million million million National Credit Union Share Insurance Fund Total revenue $321.3 million Operating expense 79.2 million Insurance loss expense 186.4 million Net income 55.7 million Reserve for losses 215.8 million Fund balance 7.3 billion Equity ratio (fund balance as percentage of insured deposits) 1.29 percent Central Liquidity Facility Net income before dividends and interest on deposits Dividends and interest on deposits Net income after dividends and interest on deposits Total assets Retained earnings Capital stock Federally Insured Credit Unions Number of credit unions Total assets Total insured shares Total loans Net worth to assets Share growth Ratio of loans to shares Delinquency ratio Net income (before reserve transfers) $89.0 89.0 0 1.7 11.4 1.6 million million million billion million billion 8,101 $753.5 560.8 526.9 11.4 5.2 83.3 0.93 0.65 billion billion billion percent percent percent percent percent Financial Highlights 3 Contents message from the chairman | 5 management’s discussion and analysis NCUA Structure and Programs | 9 NCUA and Credit Unions Meet ’07 Challenges | 11 Supervision and Risk Management Progress in 2007 | 13 PACA Conveys NCUA’s Message | 14 Positioning Credit Unions for the Future | 16 Steering Enforcement, Litigation and Regulation | 18 Guiding Capital Markets, Investing and Strategic Planning | 19 Corporate Credit Union Assets Expand | 20 AMAC Kept Active in 2007 | 22 fund programs Message from NCUA’s Chief Financial Officer | 24 Central Liquidity Facility | 25 Community Development Revolving Loan Fund | 26 National Credit Union Share Insurance Fund | 28 Insured Credit Union Activity | 31 NCUA Operating Fund | 33 performance summary Annual Performance Analysis 2007 | 35 auditors’ report and financial statements | 41 financial tables Insurance Fund Ten-Year Trends | 72 Federal Credit Union Ten-Year Summary | 74 Federally Insured State-Chartered Credit Union Ten-Year Summary | 75 Historical Federal Credit Union Data | 76 Who’s Who at NCUA | 78 Regional Offices and Directors | 79 Map of the Regions | 80 4 Contents Message from the Chairman I am pleased to present the 2007 National Credit Union Administration (NCUA) annual report. 2007 saw NCUA continue to achieve its mission of providing a safe, sound system of federal credit unions by adopting policies and procedures to reduce regulatory burden, address statutory requirements, respond to evolution within the credit union and financial industry, and meet economic needs. Credit unions continue to demonstrate strength and stability in turbulent financial markets. Industry-wide net worth stands at a strong 11.4 percent and membership grew by 1.3 percent. Today, federally insured credit unions serve nearly 87 million members. Savings expanded a healthy 5.6 percent and first mortgage loans grew 12.3 percent, suggesting that credit unions are fulfilling their mission to provide fairly-priced financial services by stepping in to meet real estate loan needs during a tumultuous time in the mortgage lending market. The NCUA Board assessed no National Credit Union Share Insurance Fund premium and approved a dividend returning $52 million to federally insured credit unions. NCUA testified a record seven times in 2007, as unfolding events caused Congress to focus on the mortgage lending market and consumer credit and access. A particular emphasis on Capitol Hill was placed on the repercussions of the mortgage market dislocation, with Congress requesting NCUA to testify four times on mortgage lending and Subprime practices. Additionally, in concert with other federal agencies, NCUA issued joint regulations, guidelines and aids encouraging credit unions to work with borrowers facing larger mortgage payments as rates increased and an up-tick in foreclosures occurred. On behalf of NCUA, I signed a Document of Cooperation with the National Association of State Credit Union Supervisors leadership reaffirming federal and state regulators cooperative commitment to ensure the safety and soundness of all federally insured credit unions. The NCUA Board actively worked throughout the year to engage and inform credit unions of salient issues and offer effective resource tools to help meet and overcome regulatory and operational challenges. In early 2007, I hosted an NCUA-Financial Crimes Enforcement Network (FinCEN) Bank Secrecy Act (BSA) Compliance Webinar offering more than 2,000 credit union industry participants information and guidance about BSA requirements. Vice Chairman Rodney Hood hosted a Risk Mitigation Summit where government and industry leaders provided the most effective techniques to manage risk and stimulate growth. Board Member Gigi Hyland hosted an Access Across America Empowerment Summit offering tools to enhance operations and help credit unions reach out to all segments of their field of membership. Message from the Chairman 5 A major undertaking in 2007 was executed by Board Member Hyland, whom I appointed to lead an Outreach Task Force organized to gain a better understanding and evaluate the findings of the NCUA Member Service Assessment Pilot— MSAP: A Study of Federal Credit Union Service. NCUA initiated MSAP in response to questions raised by the Congress and Government Accountability Office regarding federal credit unions’ service and mission. The Outreach Task Force mission was threefold: n Evaluate and determine the appropriateness of three MSAP recommendations; n Assess NCUA’s role and efforts with respect to credit union service to their members; and n Assess recommendations made by the Government Accountability Office 2006 report (GAO-07-29). The internal, 13-member Outreach Task Force performed an extensive review of NCUA policies and procedures in four areas: collection of membership profile and financial services data; senior executive compensation; low-income definition; and outreach. The Task Force gained a variety of viewpoints through six public Town Hall meetings held in cities across the country from April through October 2007. Board Member Hyland also held dozens of other meetings discussing Task Force efforts during visits throughout the United States. Board Member Hyland will report results of the Outreach Task Force to the Board in early 2008. Vice Chairman Hood initiated Blueprint for 2020: A Plan to Strengthen the Future of Credit Unions encouraging colleges and universities to work together with credit unions to increase student awareness and membership, employment, and participation in the credit union industry. The Vice Chairman’s goal is to create a framework of knowledge and experience that will in turn attract a new generation of credit union employees, board members and leaders well into the 21st century. On the regulatory front, NCUA sought to ensure transparency for credit union member-owners through rule changes to clarify member inspection rights regarding federal credit union books, records, and minutes and reincorporation of credit union bylaws into regulation. 6 Message from the Chairman NCUA extended the general loan maturity limit to 15 years and permitted federal credit unions to sell and cash negotiable checks, such as traveler’s checks and money orders, and offer and receive domestic and international electronic fund transfers for nonmembers within the field of membership. NCUA proposed rigorous, more effective risk-based Prompt Corrective Action reform, which awaits legislative action before implementation. NCUA joined other federal regulators issuing a policy statement to provide consistency and clarity and assist credit unions understand anti-money laundering Bank Secrecy Act enforcement requirements. A revised Catastrophic Act Reporting and Records Preservation regulation clarifies requirements for vital records preservation and provides effective program preparation guidelines. The year ended with a flurry of activity. The completely loaned-out Community Development Revolving Loan Fund posted record loan volume. Vice Chairman Hood announced plans for a 2008 Risk Mitigation Summit, Board Member Hyland led an NCUA-IRS VITA Program Webcast, and NCUA testified on both Subprime mortgage loan modification, foreclosure prevention and enforcement and consumer access to regulators. NCUA and credit unions ended 2007 with a host of accomplishments to reflect on and an ever-broadening array of plans and goals to meet the challenges of the coming year. Not withstanding challenges brought by continuing uncertainty in the financial and credit markets, credit unions remain stable and growing, denoting overall strength, durability and effective leadership. NCUA Chairman JoAnn Johnson Message from the Chairman 7 {In 2007, NCUA again demonstrated its ability to effectively respond to significant safety and soundness issues. } Management’s Discussion and Analysis NCUA Structure and Programs NCUA accomplishes its mission of serving and maintaining a safe, secure credit union community using a dynamic structure. Headquartered in Alexandria, Virginia, NCUA has five regional offices. Assigned to the regions, the bulk of NCUA staff are its 450 examiners who scrutinize the credit unions regularly to ensure safe and sound operations. NCUA’s Board and executive director are located in Alexandria headquarters along with the following major offices that administer the agency’s various programs. The Office of the Executive Director is responsible for the agency’s daily operation. The executive director reports directly to the NCUA Chairman. All regional and central office directors report to the executive director and NCUA’s Equal Opportunity Program is included in this office. The Office of Examination and Insurance (E&I) provides national guidance for NCUA’s supervision program ensuring the safety and soundness of federally insured credit unions. Within E&I, the Division of Supervision oversees NCUA’s examination and supervision program. The Division of Risk Management oversees the agency’s credit union problem resolution program and compiles the financial data submitted quarterly by all federally insured credit unions. The Office of Public & Congressional Affairs (PACA) covers federal legislation and serves as NCUA liaison to Capitol Hill and fellow government agencies. PACA is also the primary source of information about NCUA and its functions for the public, credit unions, league and trade organizations, the media and NCUA employees. The Office of Small Credit Union Initiatives’ (OSCUI) primary roles are to assist the agency’s risk mitigation program and foster credit union development, particularly the expansion of services provided by small credit unions to all eligible consumers. OSCUI also administers the Community Development Revolving Loan Fund, which supports low-income designated credit unions serving communities with loans and grants. Management’s Discussion and Analysis 9 The Office of General Counsel (OGC) is responsible for legal matters affecting NCUA. This includes representing the agency in litigation, executing administrative actions, interpreting the Federal Credit Union Act and NCUA Rules and Regulations, processing Freedom of Information Act requests, advising the Board and the agency on general legal matters, and drafting regulations designed to ensure the safety and soundness of credit unions. The Office of Capital Markets and Planning (OCMP) develops agency policies and procedures related to credit union investments and asset liability management, and the office assists examiners with evaluating investment issues in credit unions. OCMP also provides expert advice to the NCUA Board on investment issues. NCUA’s strategic planning program directs the agency’s long-range and annual planning process, which includes providing Congress with the annual NCUA plan, plus tracking and reporting on goal achievement. The Office of the Chief Financial Officer (OCFO) is responsible for agency budget preparation and management, ongoing finance and accounting functions, and administration of credit union operating fees and National Credit Union Share Insurance Fund capitalization deposits. The Office of Corporate Credit Unions (OCCU) supervises the corporate credit union system. Corporate credit unions provide a variety of investment services and payment systems for other credit unions. There are 28 corporate credit unions nationwide that range from $6.5 million to $45 billion in assets. The Asset Management and Assistance Center (AMAC) conducts credit union liquidations and performs management and asset recovery. The office assists NCUA regional offices with the review of large, complex loan portfolios and actual or potential bond claims. Staff also participates extensively in the operational phases of conservatorships and records reconstruction. 10 Management’s Discussion and Analysis {office of the executive director} NCUA and Credit Unions Meet ’07 Challenges Federally insured credit unions stood strong in the face of challenges associated with adverse economic conditions and continued to emphasize member service and the importance of serving all segments of authorized fields of membership. In particular, credit unions responded effectively to weakened real estate markets and consumer credit problems stemming from imprudent Subprime and adjustable rate mortgage lending practices of other lenders. Additionally, they offered solutions to members who were adversely affected by the economic downturn. Consumer satisfaction remained high as federally insured credit unions maintained market share with strong share and loan growth. members’ rights In 2007, NCUA continued to emphasize transparency of federally insured credit union operations and the rights of members. Throughout 2007, the Outreach Task Force, chaired by Board Member Christiane Gigi Hyland, reviewed the recommendations by MSAP, which included a proposal to make senior executive compensation more transparent to the members. In April, NCUA proposed a rule requiring all federal credit unions disclose the existence of a material increase in compensation to its members before a merger vote. In September, NCUA finalized §701.3 of NCUA’s Rules and Regulations to standardize and clarify member inspection rights regarding federal credit union books, records, and minutes. In October, the NCUA Board reincorporated the bylaws into regulation. The bylaws govern the relationship of member owners and their elected board of directors. The regulation also gives NCUA clear authority to act if a bylaw violation threatens fundamental, material credit union member rights. NCUA’s rulemaking during 2007 reflected a clear commitment to afford credit union members the opportunity to understand and participate in the decisions made by their board of directors. These actions underscore the importance of informed decisions by members and reflect the recognition that members, as credit union owners, are entitled to full disclosure when management decisions affect membership rights. strength of the national credit union share insurance fund Systemically, federally insured credit unions remained well positioned with record capital levels and strong growth. Additionally, they continued to provide needed financial services to all segments of their fields of membership. However, a few credit Management’s Discussion and Analysis 11 unions with questionable business practices required NCUA to commit significant resources to address lending and investment problems in an effort to preserve credit union services to the affected memberships and to minimize losses to the National Credit Union Share Insurance Fund (NCUSIF). In 2007, the NCUSIF recorded a loss expense of $186.4 million compared to a loss expense of $2.5 million during 2006. Though the highest loss expense since 1991, when the NCUSIF absorbed $163 million in losses and 130 failures, 2007 failures remained low at 12. The sudden rise in insurance loss expense resulted from overly aggressive lending practices in a small number of state-chartered credit unions. As witnessed in 2005 and 2006 indirect Subprime automobile lending, failure to perform proper due diligence was a recurring theme in the credit unions suffering large losses. In 2007, federally insured credit unions also experienced a slight increase in home mortgage delinquencies, which reflects the housing market in general. Importantly, the increase in delinquencies was well below the national average indicating credit unions avoided exotic mortgages and followed more prudent, consumer oriented lending practices. In response to emerging issues, NCUA increased its supervision program, reallocated resources, and more closely coordinated the use of resources between regions. The strength and diversity of the NCUSIF, backed by the full faith and credit of the U.S. government, provided NCUA the ability to safely absorb increased losses, avoid an insurance premium, and maintain member confidence in the federally insured credit union system. budget During 2007, the NCUA Board adopted a 2008 operating budget of $158,631,447, which was an increase of 4.35 percent or $6,614,607 of the budget approved for 2007. In addition to normal inflationary budget pressures, the increase primarily resulted from adding seven staff members to address emerging lending issues and new employee benefits provided in the collective bargaining agreement. As a result, the 2008 operating fee increased by 9.85 percent, but the 2008 overhead transfer rate decreased from 53.3 percent to 52 percent. NCUA’s annual operating budget is financed by the federal credit union operating fee and an overhead transfer from the NCUSIF. ncua employee contract NCUA completed negotiations with the National Treasury Employees Union Chapter 303 on the first collective bargaining agreement for NCUA. The agreement is a positive development for both agency management and employees. The contract addresses travel, work locations, work schedules, compensation, benefits, and other areas of concern raised by both management and bargaining unit representatives. The agreement is significant and should further strengthen NCUA’s established record of recruiting and retaining qualified staff. 12 Management’s Discussion and Analysis {office of examination and insurance} Supervision and Risk Management Progress in 2007 mortgage lending guidance In coordination with other federal regulatory agencies, NCUA issued supervisory guidance to credit unions concerning nontraditional and Subprime mortgage products. The guidance emphasized sound underwriting and portfolio management, the importance of educating members receiving these types of loan products, and working with borrowers experiencing repayment difficulties. camel matrix NCUA discontinued use of the CAMEL matrix as a guide to setting CAMEL ratings for examination and supervision contacts with effective dates of December 31, 2007, and thereafter. Eliminating the matrix promotes and complements the principles of the risk focused examination program. disaster recovery regulations NCUA revised Parts 748 and 749, and added Appendix B of Part 749, of the NCUA Rules and Regulations to ensure credit unions are able to restore vital records and member services in the event of a catastrophic act. The revisions clarified the meaning of catastrophic act and the requirements for preserving vital records, and the revisions provide guidelines for developing a program to prepare for a catastrophic act. third-party relationships evaluation guidance NCUA issued supervisory guidance to examiners on the evaluation of relationships credit unions have with third parties. Third party relationships pose various risks but are a business necessity important to the success of credit unions. The supervisory guidance addresses the evaluation of planning, due diligence, and controls credit unions need to safely engage in third party relationships. prompt corrective action (pca) reform proposal NCUA issued a revised proposal to reform the PCA statute for credit unions in favor of a more vigorous risk based capital standard. The proposal results in a risk based capital calculation being the predominant capital standard for credit unions. The proposal was submitted to the Department of Treasury and Congress. normal operating level policy NCUA adopted a policy for setting the normal operating level for the National Credit Union Share Insurance Fund (NCUSIF). The policy results in a more transparent process for setting the normal operating level and requires a robust annual evaluation of the condition of the NCUSIF. Management’s Discussion and Analysis 13 {office of public & congressional affairs} PACA Conveys NCUA’s Message PACA was an active NCUA conduit for Congress, the media and the credit union industry in 2007. Several credit unions with problem loan portfolios tied to Subprime mortgages and a declining mortgage market gained media attention. Phishing scams using NCUA and credit unions identities, a credit union encouraging a merger partnership and several credit union conversions drew media attention. NCUA testified seven times as events unfolded and Congress focused on consumers and the mortgage lending market. NCUA testimony included: n March 1, 2007, Chairman JoAnn Johnson testified before the House Appropriations Subcommittee on Financial Services and the General Government on financial services for disadvantaged communities. March 27, 2007, Chairman JoAnn Johnson testified before the House Subcommittee on Financial Institutions and Consumer Credit concerning Subprime mortgages and foreclosures in relation to credit unions. June 7, 2007, Chairman JoAnn Johnson testified on Regulation Z and credit card disclosures before the House Subcommittee on Financial Institutions and Consumer Credit. July 25, 2007, Director of Examination and Insurance David Marquis testified on oversight of consumer laws pertaining to mortgage lending before the U.S. House of Representatives Financial Services Subcommittee on Oversight and Investigations. October 24, 2007, Chairman JoAnn Johnson testified on “Legislative Proposals On Reforming Mortgage Practices” before the House Financial Services Committee. December 6, 2007, Board Member Gigi Hyland testified on “Accelerating Loan Modifications, Improving Foreclosure Prevention and Enhancing Enforcement” before the House Financial Services Committee. December 12, 2007, Executive Director J. Leonard Skiles testified on consumer access to regulators before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. n n n n n n 14 Management’s Discussion and Analysis NCUA provides Congress with a significant amount of required and discretionary agency and credit union information each year. In 2007, NCUA complied with the Federal Deposit Insurance Reform Conforming Amendment Act of 2005 providing Congress with the report—Possible Changes to the Deposit Insurance System. Both NCUA and Federal Deposit Insurance Corporation (FDIC) conducted independent studies, and NCUA concluded that Congress should not authorize NCUA or FDIC to provide voluntary excess deposit insurance; NCUA neither favors nor opposes increasing deposit insurance coverage for municipalities or local government entities; and NCUA opposes privatizing deposit insurance. PACA provided Congressional leaders and staff with detailed information on provisions within the Credit Union Regulatory Improvements Act (CURIA) legislative package affording enhanced protection by providing a risk-based prompt corrective action system for credit unions, enabling community credit unions to serve low-income areas, ensuring members are fully informed when charter changes are considered, and expanding member business lending eligibility. PACA issued over 170 media advisories and releases in 2007 and nine Board Action Bulletins and NCUA NEWS newsletters conveying the NCUA message to its audience—credit unions and their members, Capitol Hill, league organizations, trade associations, credit union local and national media, and the general public. Working with fellow regulators, PACA issued numerous interagency releases on initiatives addressing various topics, including: the NCUA—FinCEN Bank Secrecy Act Compliance Webinar; model consumer privacy form guidance; a Subprime mortgage lending statement addressing risk and emerging lending practice issues; and illustrations helping financial institutions implement the consumer protection portion of the Guidance on Nontraditional Mortgage Product Risks adopted in 2006. In an outreach effort, PACA made its Consumer Assistance Hotline more prominent and added a toll-free consumer complaint line feature. The Hotline is available 24/7 and provides members quick access to problem resolution and basic information about NCUA and credit union features. Along with people from the credit union community, banking groups from China and South Africa visited NCUA last year to learn about the United States system of federal credit union chartering, supervision and member account insurance protection. Management’s Discussion and Analysis 15 {office of small credit union initiatives} Positioning Credit Unions for the Future The Office of Small Credit Union Initiatives’ (OSCUI) primary roles are to assist the agency’s risk mitigation program and foster credit union development, particularly the expansion of services provided by small credit unions to all eligible consumers. OSCUI fulfills these roles via training, assistance, and partnership opportunities (TAP). By utilizing TAP during 2007, OSCUI realized significant achievements to increase the availability of credit union services to all eligible consumers, especially those of modest means. training—sharing knowledge and developing credit union leaders 2007 saw OSCUI spearhead workshops, roundtables, clinics and other training events throughout the country. This training surpassed the previous year’s noteworthy success. Over 2,200 representatives from all asset-size credit unions attended training events in 2007. Twenty nationwide workshops drew 1,539 credit union representatives. Workshop agendas’ included Regulatory Hot Topics, Succession Planning, NCUA Risk Indicators and Understanding Financial Statements, Strategic Planning, and Finding Your Niche and Marketing to It. Other training events included 10 roundtables and 24 clinics attended by 727 credit union representatives. Topics included management responsibilities, NCUA Risk Indicators and Key Ratios, Planning, Building and Managing the Loan Portfolio, Regulatory Hot Topics, and Marketing. assistance—delivering needed assistance to credit unions OSCUI offers individualized and financial assistance. NCUA staff provided over 12,000 hours of on-site contact assistance to small credit unions. More than half of these assistance contacts related to strategic issues. In addition, staff assisted 22 proposed charter groups, which resulted in chartering three credit unions. Small credit unions wishing to receive hands-on assistance should contact their NCUA regional office. Currently, 3,995 credit unions are eligible to participate in NCUA’s National Small Credit Union Program. Credit unions eligible to participate are either: n Designated low-income (regardless of asset size); n Less than $10 million in assets; or n Newly chartered and less than 10 years old. 16 Management’s Discussion and Analysis OSCUI also administers the Community Development Revolving Loan Fund (CDRLF). The CDRLF was established in 1979 to support the Federal Credit Union Act’s mission of making credit more accessible to people of small means by providing financial assistance to low-income designated credit unions. CDRLF activity is described in the NCUA Fund Programs section of this report. partnership opportunities—serving consumers, providing resources for credit unions Credit unions working in partnership with community-based organizations, foundations, government agencies, and other organizations can form synergies that result in increased financial services for consumers and resources for credit unions. OSCUI leads the agency’s partnering initiative and has created a web portal for resources. The Resource Connection consists of the following three sections. n Credit Union Connection. Summaries of credit union business practices in the areas of financial education, liquidity, loans, and member services. n Partnership Connection. Contains 40 informational sheets pertaining to government and foundation programs. n Training Connection. Lists training opportunities offered by NCUA and its partners. Access The Resource Connection online at http://www.ncua.gov/Resourceconnection. positioned for the future OSCUI looks forward to continuing to serve credit unions that TAP into our resources in 2008. Future plans include: n Training. OSCUI will host 20 national workshops, 10 roundtables, and numerous clinics. Topics will include: Evaluating Third Party RelationshipsDue Diligence, Future of NCUA 5300 Call Reports, Common BSA Violations, and Modifications to the CAMEL Rating System. Visit the agency website http://www.ncua.gov/CreditUnionDevelopment/Events/Index.htm for locations and dates. All credit unions are invited to attend. n Assistance. Staff will provide on-site assistance (with an emphasis on due diligence and partnership issues) to credit unions participating in the Small Credit Union Program 2008. n Partnerships. To keep pace with credit union needs, OSCUI will provide webbased training pertaining to partnership opportunities. OSCUI will also expand its work in identifying new resources for credit unions and will actively promote The Resource Connection. For more information about OSCUI and its initiatives, visit http://www.ncua.gov/ CreditUnionDevelopment/Index.htm, or contact the Office of Small Credit Union Initiatives at 703-518-6610. Management’s Discussion and Analysis 17 {office of general counsel} Steering Enforcement, Litigation and Regulation enforcement orders NCUA continues to use its enforcement authority to address problems in federally insured credit unions as well as abuses by credit union officials and institution affiliated parties. During 2007, the agency issued 38 prohibitions and 2 cease and desist orders. Four credit unions were placed into conservatorship. litigation NCUA was successful in defeating a challenge, in Federal District Court, to amendments to the agency’s charter conversion regulation during 2007. The plaintiff, the Coalition for Credit Union Charter Options, has filed an appeal with the U.S. Court of Appeals An additional lawsuit filed in Pennsylvania challenging a community chartering decision by the NCUA Board remains unresolved. regulatory initiatives The Office of General Counsel continued regulatory initiatives in 2007 addressing a broad range of member interests and credit union operations. These included regulations on member inspection of credit union books and records, reincorporation of the Federal Credit Union Bylaws into NCUA’s regulations, and clarification and enhancement of the records preservation requirements and reporting of catastrophic events, including preparedness guidance for credit unions so they can avoid interruptions in member services. The Office of General Counsel (OGC) worked on various interagency regulatory matters. This included the near completion of rules implementing the Fair and Accurate Credit Transactions Act addressing important consumer matters such as identity theft and information sharing. OGC also participated in interagency working groups on unfair trade practices, guidance on garnishment, flood insurance questions and risk-based lending. 18 Management’s Discussion and Analysis {office of capital markets and planning} Guiding Capital Markets, Investing and Strategic Planning capital markets The Division of Capital Markets advised the NCUA Board on capital markets policy issues and provided guidance to examiners on investments, interest rate risk and liquidity risk. In cooperation with the Office of Human Resources Division of Training and Development, the Capital Markets Division developed, maintained and presented a series of capital markets training programs for general examiners, capital markets subject matter examiners and capital markets specialists. In addition, division staff provided examination assistance to a number of corporate and natural person credit unions. planning and economic analysis The Division of Planning and Economic Analysis facilitated the continued enhancement and integration of Government Performance Results Act (GPRA) performance planning and budgeting, economic analysis and continuity of operations planning and training into day-to-day NCUA operations. In 2007, planning staff guided development of the NCUA Annual Performance Budget 2008, NCUA Annual Performance Report 2006, Continuity of Operations Planning for Pandemic Avian Influenza, the NCUA Continuity of Operations Plan and the Draft NCUA Strategic Plan 2009–2014, which was released by the NCUA Board for public comment. The division hired an econometrician to conduct economic analysis and develop performance measurements. The division facilitated the NCUA Strategic Management Council (SMC) and the Information Technology Oversight Committee (ITOC). Additionally, staff participated on the inter-agency Financial and Banking Information Infrastructure Committee (FBIIC). Division staff also represented NCUA on several inter-agency contingency committees and exercises on continuity planning preparation and readiness, including the national pandemic avian influenza exercise. Management’s Discussion and Analysis 19 {office of corporate credit unions} Corporate Credit Union Assets Expand During 2007, the assets of the corporate system grew to record levels. In March 2007, assets reached its highest, $155 billion. While assets fluctuated from month to month throughout the year, each month’s asset level was higher than the previous record of $129 billion set in December 2006. As uncertainty resonates through the financial markets, credit unions are relying on the corporates as a safe haven for their funds. corporate credit unions address subprime mortgage securities The troubled Subprime mortgage market had an impact on some corporate credit unions in 2007. While corporates, by regulation, only invest in the highly rated securities, even high-quality performing securities are experiencing market effects. As 2007 came to a close, the dislocation of the mortgage market made it difficult to value mortgage-related securities. OCCU took a proactive approach in those corporate credit unions with the highest concentrations of these securities by working closely with their staff to ensure a reasonable and consistent approach is utilized in valuing the portfolios. Key StatiSticS on fedeRally inSuRed coRpoRate cRedit unionS december 31, 2007 (in millions) December 31 Number Assets Loans Shares Reserves Undivided earnings Gross income Operating expenses Interest on borrowed funds Dividends and interest Net income Dollar amounts do not include U.S. Central 2005 31 $73,700.8 5,750.4 57,661.4 4,486.7 910.8 2,519.9 333.9 159.9 1,891.9 134.1 2006 30 $85,204.6 4,555.5 66,016.9 4,539.7 975.3 3,744.3 342.3 271.8 3,000.3 129.9 2007 28 $95,936.9 4,251.7 73,426.2 4,880.5 1,074.1 4,853.4 358.1 412.3 3,867.3 215.6 Significant RatioS Reserves to assets Reserves and undivided earnings to assets Operating expenses to gross income Yield on assets Cost of funds to assets Gross spread Ratios do not include U.S. Central 6.1 7.3 13.3 3.4 2.8 .6 5.3 6.5 9.1 4.6 3.8 .8 5.1 6.2 7.4 5.0 4.5 .5 20 Management’s Discussion and Analysis Two corporate credit union mergers were finalized at the end of 2007. A number of other mergers are in the discussion stage and may be submitted for consideration in 2008. As with other sectors of the financial industry, consolidation is an issue for corporate credit unions that will likely continue for the foreseeable future. OCCU is committed to working with corporates to ensure proposed mergers take place as seamlessly as possible to mitigate the affect on service to member credit unions. The number of corporate credit unions that remain as a result of consolidation will be determined by the market and by the needs of the credit union system. fedeRal coRpoRate cRedit unionS december 31, 2007 Corporate Name Constitution State Corporate One Eastern Corporate Kentucky Corporate LICU Corporate Members United Corporate1 Mid-Atlantic Corporate Midwest Corporate Southeast Corporate Southwest Corporate2 Tricorp Corporate VACORP Western Corporate Total 1 2 City, State Wallingford, Connecticut Columbus, Ohio Burlington, Massachusetts Louisville, Kentucky Endicott, New York Warrenville, Illinois Middletown, Pennsylvania Bismarck, North Dakota Tallahassee, Florida Plano, Texas Westbrook, Maine Lynchburg, Virginia San Dimas, California Assets (in millions) $1,678,017,864 4,166,172,797 2,005,075,982 530,518,932 6,546,873 14,467,733,175 3,275,207,705 308,240,747 4,201,597,153 12,713,583,102 816,532,200 1,655,200,126 32,517,008,547 $ 78,341,435,203 Central Credit Union Fund, Inc. merged into Members United Corporate in 2007. Northwest Corporate merged into Southwest Corporate in 2007. fedeRally inSuRed State coRpoRate cRedit unionS december 31, 2007 Corporate Name Central Corporate Corporate America Corporate Central First Corporate First Carolina Corporate Georgia Central Iowa Corporate Kansas Corporate Louisiana Corporate Missouri Corporate SunCorp Treasure State Corporate Volunteer Corporate West Virginia Corporate Total City, State Southfield, Michigan Irondale, Alabama Hales Corners, Wisconsin Phoenix, Arizona Greensboro, North Carolina Duluth, Georgia Des Moines, Iowa Wichita, Kansas Metairie, Louisiana St. Louis, Missouri Westminister, Colorado Helena, Montana Nashville, Tennessee Parkersburg, West Virginia Assets (in millions) $3,297,613,986 1,302,481,641 1,933,300,118 880,236,591 2,058,567,210 1,705,130,783 128,533,116 428,138,614 189,762,934 907,924,066 2,931,955,765 282,055,161 1,278,536,307 271,283,120 $17,595,519,412 $95,936,954,615 $45,149,093,509 Total for All Corporates (Excluding U.S. Central) U.S. Central Federal CU Lenexa, Kansas Management’s Discussion and Analysis 21 {asset management and assistance center} AMAC Kept Active in 2007 The major focus of the Asset Management & Assistance Center (AMAC) in 2007 was dealing with several large credit unions affected by the deteriorating mortgage and housing markets. The credit unions held over $700 million in nontraditional mortgage loans. AMAC assisted regional staff to mitigate the losses associated with these loans. In one case, assuming direct control of loan collections and later all servicing following closure of the institution. AMAC directed six liquidations in 2007. These cases are in addition to 42 active cases still being processed that were placed into liquidation prior to 2007. Three liquidations were due to fraud and required an enormous amount of resources to resolve. Assistance was provided to all five regions completing nine consulting assignments totaling over 5,000 hours. The assignments included accounting services, loan portfolio analysis and valuations, member business loan reviews, lease analysis, and managing foreclosures. AMAC continued its role of providing training with AMAC staff presenting seven seminars on business and consumer loan underwriting, collections and real estate. 22 Management’s Discussion and Analysis {The following pages present NCUA Fund Program Operations and related activities that took place during 2007. } Fund Programs The Central Liquidity Facility provides liquidity for all member credit unions and can invest in U.S. government and agency obligations, deposits of federally insured institutions and shares or deposits in credit unions. The Community Development Revolving Loan Fund provides loans and grants to low-income designated credit unions. The National Credit Union Share Insurance Fund (NCUSIF) is the federal fund created by Congress in 1970 to insure member deposits in credit unions up to at least $100,000. Administered by the National Credit Union Administration, the NCUSIF is backed by the “full faith and credit” of the U.S. Government. The Operating Fund, in conjunction with the NCUSIF, finances NCUA operations. Management’s Discussion and Analysis 23 NCUA’s Chief Financial Officer I am pleased to present the National Credit Union Administration (NCUA) 2007 financial statements, our principal financial measure of accountability to the President, Congress, credit unions and the American public. NCUA received unqualified or “clean” opinions from our independent financial auditors, a standard of excellence that we set in the early 1980s. The report and statements for the Share Insurance Fund, the Operating Fund, the Central Liquidity Facility and the Community Development Revolving Loan Fund can be found in the section titled Auditors’ Report and Financial Statements. NCUA has a proud history of strong stewardship and financial transparency. This tradition was continued in 2007 by: n Providing external stakeholders monthly financial statements; n Soliciting stakeholder input at the annual budget briefing and public forum; n Providing quarterly briefings to the Board, which are open to the public, on the financial status of the National Credit Union Share Insurance Fund; n Returning nearly $4 million in excess cash through reduced operating fee rates; n Incurring no interest penalties for late payments under the Prompt Payment Act; and n Filling all field examiner vacancies. NCUA is in full compliance with all applicable laws such as the Federal Managers’ Financial Integrity Act, the Prompt Payment Act, and the Debt Collection and Improvement Act. As required by the Improper Payments Information Act, we have determined that NCUA programs are not susceptible to a high risk of significant improper payments. NCUA also met the criteria for Financial Performance outlined in the President’s Management Agenda—consistently receiving unqualified audit opinions; meeting established deadlines for filing audited financial statements; and continuing to have no auditor-reported material internal control weaknesses or non-compliance with laws and regulations. Effective financial management allows NCUA to rely on its financial data for tactical and strategic decision-making. The culture of effective stewardship of NCUA resources is built upon the dedicated work of many people across the organization and is rooted in NCUA’s safety and soundness mission. We are confident that this culture will allow us to meet tomorrow’s challenges with the same positive results. Sincerely, Mary Ann Woodson Chief Financial Officer 24 Fund Programs {central liquidity facility} Poised to Meet Liquidity Needs The Central Liquidity Facility (CLF) serves as a back-up lender to meet the unexpected liquidity needs of its member credit unions when funds are unavailable from standard credit sources. The two primary sources of funds for the CLF are stock subscriptions from credit unions and borrowings from the Federal Financing Bank. clf borrowing cap maintained By statute, the CLF is authorized to borrow from any source up to 12 times its subscribed capital stock and surplus. Since fiscal year 2001, Congress has approved a $1.5 billion borrowing limit, and the same amount was recommended for fiscal year 2008. clf operations After funding operating expenses in 2007, the CLF paid members dividends of approximately 100 percent of net investment income for the 13th consecutive year. The average member dividend was 5.54 percent. While corporate credit unions continue to meet most liquidity needs, the CLF remains ready and able to meet the liquidity needs of the credit union system when unusual, unexpected or extreme events occur. clf receives 27th clean audit opinion The CLF received an unqualified audit opinion on its 2007 financial statement from independent auditors Deloitte & Touche LLP. Fund Programs 25 {community development revolving loan fund} CDRLF Loans and Grants Expand Member Access community development Revolving loan fund The Office of Small Credit Union Initiatives administers the Community Development Revolving Loan Fund (CDRLF). The CDRLF was established in 1979 to support the Federal Credit Union Act’s mission to make credit more available to people of small means. The CDRLF provides reduced rate loans and technical assistance grants to eligible federal and state-chartered credit unions serving lowincome communities. Credit unions can visit the NCUA websites: http://www.ncua.gov/ CreditUnionDevelopment/UnderServed/medIncome.html for more information about applying for a low-income designation; and http://www.ncua.gov/ CreditUnionDevelopment/Programs/FinanceGrants.htm for more information about CDRLF loans and grants. CDRLF loans and grants allow credit unions to: n Make needed financial services available for members; n Help stimulate the economy in the communities served; and n Foster the growth and stability of low-income credit unions. enabling credit unions through financial assistance In 2007, the CDRLF increased the size of its loan portfolio by funding 42 loans totaling more than $7.5 million ($6 million from available cash plus $1.5 million from loan repayments). On December 31, 2007, the loan portfolio totaled $13.3 million, and one loan commitment in the amount of $150,000 had been approved. No additional loan funds were available. 26 Fund Programs technical aSSiStance gRantS december 31, 2007 Other 1% Security 1% Office Expenses 2% Consulting/Audit 2% Equipment 3% Financial Education 3% Share Draft 3% Repairs/Improvements 6% Student Interns 6% VITA 9% ATM 17% Web/Online 12% Computer Training Hardware 11% Computer 11% Software 13% The CDRLF processed 575 grant applications and approved 315 grants totaling $1.5 million in 2007. Grants were awarded from funds supplied by a Congressional appropriation of $940,500 and CDRLF loan and investment income of approximately $350,000. The number of grants processed increased 16 percent from 2006. The proceeding graph illustrates how grants were used in 2007. The CDRLF received an unqualified audit opinion on its 2007 financial statements which can be found in the auditor’s section of this report. This is the 15th consecutive unqualified opinion rendered to the CDRLF. funding opportunities in 2008 In 2008, CDRLF plans to continue offering grant opportunities to credit unions. The focus is on building internal capacity; enhancing member services (including the Volunteer Income Tax Assistance program); providing training opportunities; and offering other funding programs (e.g. Student Internship Program and Urgent Needs). Funded by loan repayments, NCUA also plans to offer a CDRLF loan program during the latter part of the year. By offering these financial assistance programs, CDRLF continues to be a critical resource for credit unions serving low-income communities. Fund Programs 27 {national credit union share insurance fund} NCUSIF is Robust Despite Loss and Reserve Increases Your savings federally insured to at least $100,000 and backed by the full faith and credit of the United States Government NCUA National Credit Union Administration, a U.S. Government Agency In 2007, the National Credit Union Share Insurance Fund (NCUSIF) had steady growth and positive earnings while recognizing its largest loss in history—$186.4 million. In accordance with Generally Accepted Accounting Principles (GAAP), insurance losses are incurred when loss reserves are established for institutions considered a probable loss. Despite losses, primarily tied to a faltering real estate market, the NCUSIF remains healthy. Insured shares grew 5 percent and the year ended with a Fund equity ratio of 1.29 percent. This meant the Fund did not issue a dividend at year-end 2007 because the normal operating level equity ratio must rise above 1.3 percent to issue a dividend. NCUSIF earnings were $321.3 million before expenses in 2007. Most earnings were derived from the Fund’s $7.4 billion investment portfolio comprised of U.S. Treasury securities with maturities of five years or less. Operating costs of $79.2 million were $2.8 million less than 2006. reserves The NCUSIF ended 2007 with $215.8 million in reserves set aside to protect against future or potential losses, a net increase of $145.6 million over the previous year. Unallocated Fund reserves at December 31, 2007, were $54.2 million. failures Twelve credit unions failed during 2007, resulting in $43.2 million charged to reserves. These credit unions were classified CAMEL code 4 or 5 institutions. Money spent on failed institutions is charged to the reserve account and not reflected as an insurance loss expense. ncuSif ReSeRveS in millionS of dollaRS december 31, 2007 250 200 150 100 50 0 2003 2004 2005 2006 2007 76.7 67.1 73.0 70.2 215.8 28 Fund Programs ncuSif income and expenSeS by percent The number of problem code 4 and 5 credit unions decreased from 240 to 211 during 2007. Insured shares in these credit unions increased from $5.2 billion in 2006 to $5.3 billion in 2007 and represented approximately 0.94 percent of total insured shares at year-end 2007. ncusif operating level policy established Net Income 17.3% Administrative Expense 24.7% Insurance Loss 58.0% In December 2007, the NCUA Board approved a policy providing transparency in setting the Fund’s normal operating level and determining dividends and assessment of premiums, in addition to formalizing the process for ensuring rigorous, ongoing analysis of the Fund. The Board also established a normal Fund operating level of 1.30 percent and will continue to review the operating level at least annually, taking action when change is necessary. The NCUA Board traditionally sets the Fund’s normal operating level at the end of each calendar year. ncusif investment policy revisions approved In December 2007, the NCUA Board approved NCUSIF investment policy revisions. The policy establishes maturity limits, defines permissible investments and provides a general investment strategy. Adhering to the revised investment policy, Fund monies will be invested as follows: n Maintain an overnight liquidity target determined by projected liquidity needs; n Invest 5 percent of the non-liquidity balance minus $50 million in a 5-year Treasury ladder each quarter; and n Invest $50 million in a 10-year Treasury ladder each quarter. By adding this Treasury ladder to the investment portfolio, the NCUSIF will experience additional earnings stability while providing expected higher future returns. peRcentage of ShaReS by CAMEL category Category Code 1 & 2 Code 3 Code 4 Code 5 Totals 2003 94.1% 5.2 0.7 0.0 100% 2004 91.9% 7.3 0.8 0.0 100% 2005 93.6% 5.3 1.1 0.0 100% 2006 93.6% 5.5 0.9 0.0 100% 2007 93.2% 5.8 0.9 0.1 100% Fund Programs 29 ncusif receives 24th unqualified opinion The NCUSIF received its 24th consecutive unqualified audit opinion on December 31, 2007, financial statements from independent auditors Deloitte & Touche LLP. The audited financial statements, accompanying footnotes and independent auditors’ report appear later in this report. The National Credit Union Share Insurance Fund continues to be audited by an independent accounting firm, and it is subject to audit by the Government Accountability Office. ReSeRveS foR eStimated loSSeS (in thousands) Fiscal year Reserves—beginning of fiscal year Net charges for fiscal year Provision for insurance losses Reserves—end of fiscal year 2003 $47,543 (8,919) 38,043 $76,667 2004 $76,667 (6,117) (3,424) $67,126 2005 $67,126 (15,090) 20,940 $72,976 2006 $72,976 (5,295) 2,548 $70,229 2007 $70,229 (40,846) 186,397 $215,780 adminiStRative coStS (in thousands) Fiscal year Direct expenses Allocated expenses Total administrative expenses Percent of NCUA total administrative expenses 2003 $1,868 83,158 $85,026 62.5% 2004 $1,542 79,863 $81,405 60.3% 2005 $1,641 78,832 $80,473 57.5% 2006 $1,414 80,642 $82,056 57.4% 2007 $1,452 77,766 $79,218 53.8% SummaRy of camel code 4 & 5 cRedit unionS Fiscal year 2002 Number of Code 4 & 5 credit unions 211 Percentage of insured credit unions 2.2% Shares in Code 4 & 5 credit unions $2.9B Percentage of NCUSIF natural person insured shares 0.66% 2003 217 2.3% $3.6B 0.74% 2004 255 2.8% $4.3B 0.87% 2005 280 3.1% $5.8B 1.12% 2006 2007 240 211 2.9% 2.6% $5.2B $5.3B 0.96% 0.94% inSuRed ShaRe gRowth in fedeRally inSuRed cRedit unionS* (in millions) Shares outstanding December 31 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Federal credit unions 191,328 194,766 195,871 217,112 238,912 262,420 276,395 285,713 296,469 308,917 State credit unions 130,129 140,857 157,996 185,574 202,552 215,056 222,573 229,909 237,724 251,915 Total 321,457 335,623 353,867 402,686 441,464 477,476 498,968 515,622 534,193 560,832 Percentage change from prior year total shares 9.6% 4.4% 5.4% 13.8% 9.6% 8.2% 4.5% 3.3% 3.6% 5.0% *Natural Person Credit Unions 30 Fund Programs Insured Credit Union Activity changeS in fedeRally inSuRed cRedit unionS fiscal year 2007 Federal credit unions Number January 1, 2007 Additions: New charters Conversions Total charter additions Mergers: Assisted Voluntary Mergers in process Liquidations: Voluntary Involuntary Liquidations in process Conversions: FCU to FISCU FCU to NFICU FCU to Non-CU Total charters cancelled Total credit unions, December 31, 2007 Net change FCU = Federal credit union FISCU = Federally insured state-chartered credit union NFICU = Non-federally insured state-chartered credit union Non-CU = Non-credit union charter Federally insured state credit unions 3,173 0 12 0 12 (103) (2) (95) (6) (6) (2) (3) (1) (11) FISCU to FCU (11) FISCU to NFICU (0) FISCU to Non-CU (0) (120) 3,065 (108) Total 8,362 3 23 0 26 (250) (5) (237) (8) (12) (4) (7) (1) (25) (23) (0) (2) (287) 8,101 (261) 5,189 3 11 0 14 (147) (3) (142) (2) (6) (2) (4) (0) (14) (12) (0) (2) (167) 5,036 (153) FISCU to FCU NFICU to FCU FCU to FISCU NFICU to FISCU Fund Programs 31 multiple common bond fedeRal cRedit union expanSionS january 1– december 31, 2007 Region Number of credit unions Number of groups added 200 and less 201-500 501-1,000 1,001-1,500 1,501-2,000 2,001-2,999 3,000 and over Potential new members Average size of groups added Applications denied Deferrals* Groups denied of 3,000 and over Groups deferred of 3,000 and over Largest approved I 103 1,076 928 85 30 11 7 11 4 166,406 155 20 62 0 9 13,500 II 193 2,337 2,088 140 60 18 7 10 14 612,144 262 15 125 0 11 300,743 III 161 2,578 2,271 184 67 20 8 18 10 475,688 185 3 70 2 12 59,000 IV 112 873 728 76 31 14 5 9 10 360,345 413 4 9 0 2 99,400 V 126 2,370 2,153 100 51 21 11 14 20 673,838 284 3 44 0 10 175,929 Total 695 9,234 8,168 585 239 84 38 62 58 2,288,421 248 45 310 2 44 *This number represents the total number of deferrals processed upon initial receipt of an expansion request. Some of these initial deferrals were subsequently approved or denied. 32 Fund Programs {ncua operating fund} NCUA Reduces Operating Fee and Overhead Transfer Rate operating fee assessment The operating fee assessment rate charged to individual federal credit unions decreased 1.54 percent primarily due to federal credit union asset growth and a small increase in the agency’s budget. For federal credit unions affected by Hurricanes Katrina and Rita, hurricane related funds in member accounts were excluded from the operating fee formula and resulted in relief of approximately $81,000. A total of $64.0 million was collected in operating fees in 2007. overhead transfer rate The National Credit Union Share Insurance Fund (NCUSIF) reimburses the Operating Fund for insurance related expenses through an overhead transfer. The overhead transfer rate, based primarily on the amount of insurance work performed by NCUA staff, is calculated annually and applied to actual expenses. For 2007, the overhead transfer rate was 53.3 percent and resulted in a reimbursement of $77.8 million. operating expenses Operating expenses were $2.8 million under the 2007 budget of $71.0 million. This variance is primarily attributed to staff vacancies during the year averaging 2.8 percent below the 957.92 authorized staffing level. Fund Programs 33 {NCUA met all annual performance goals in 2007. } NCUA Annual Performance Summary Annual Performance Analysis 2007 NCUA performance indicators illustrate the agency met or exceeded most of its annual objectives and exhibited continued progress toward strategic goals and mission accomplishment. NCUA measures success based on the performance of the credit union system it supervises and regulates. The percentage of adequately- and well-capitalized federally insured credit unions (FICU) increased from 99.17 to 99.35 percent during 2007. The 93.51 percent share of FICUs with a CAMEL code rating of 1 or 2 was well above the 90 percent target, while the 1.27 percent of FICUs with a CAMEL code of 4 or 5 for more than 12 months remained well below the 2 percent ceiling. The growth pace of FICU shares and assets was above the previous two years’ average, contributing to an increase in the credit union share of federally insured deposits. Membership growth at FICUs improved and members expanded their use of credit union products and services. FICUs had increases in money market shares, share certificates, IRA/KEOGH accounts, first mortgage real estate loans and unsecured credit cards. Credit unions also continued to increase their competitiveness, as reflected by an increase in the percentage of FICUs offering various products and services such as real estate loans, member business loans and transactional websites. Notably, growth in membership, assets, shares and loans at low-income designated credit unions significantly exceeded NCUA’s targets, reflecting the success of the agency’s outreach and financial education efforts. Credit union performance in 2007 was influenced by numerous economic challenges. A significant housing market correction, uncertainty in the financial markets, a flat yield curve and slower economic growth resulted in slower total loan growth. Consequently, the credit union system saw a slight decline in its market share of consumer credit, primarily associated with non-revolving loans. The growth rate of federal credit union (FCU) member business loan accounts slowed significantly, led by construction and development loans, likely the result of a correction in the housing market and the deteriorating economy. However, the total dollar amount of member business loans at FCUs increased, emphasizing expanded use by members with businesses. Economic developments as well as an increase in retirement insurance coverage may also have impacted the growth rate of FCU share accounts. Credit union performance was also influenced by operational changes. The additional examination focus and scrutiny in the Bank Secrecy Act area led to an increase in compliance risk for the second year in a row. NCUA Annual Performance Summary 35 Goal achieved. Goal not achieved with no impact on overall program and activity performance. Goal not achieved with an impact on overall program and activity performance. A decline in the corporate credit union capital ratio can be explained by the increase in moving daily average net assets. Adjusting for this increase, the capital ratio would have improved from the prior year and met its strategic goal. Looking forward, the operating environment will continue to present challenges as well as opportunities for credit unions and NCUA. NCUA will continue to review strategic and annual indicators annually to ensure the reliability of its performance measurement process. StRategic goal 11 a safe, sound and healthy credit union system. Strategic Indicator 1.1 Desired Level Results Performance Percentage of adequately and well-capitalized FICUs Maintain above 98 percent Goal achieved 2004 2005 2006 99.17% 2007 99.35% 98.97% 99.14% Strategic Indicator 1.2 Desired Level Results Performance Percentage of assets held by FICUs with an overall CAMEL rating of 1 or 2 Maintain above 90 percent Goal achieved 2004 2005 2006 93.69% 2007 93.51% 92.22% 93.80% Strategic Indicator 1.3 Desired Level Results Performance Corporate credit union system’s capital ratio Improve from prior year Goal not achieved with no impact on overall program and activity performance 2004 7.01% 2005 7.25% 2006 6.86% 2007 6.18% Strategic Indicator 1.4 Desired Level Results Performance Percentage of corporate credit unions with a CRIS Risk Management Rating of 1 and 2 Maintain above 75 percent Goal achieved 2004 77% 2005 78% 2006 87% 2007 83.33% 36 NCUA Annual Performance Summary StRategic goal 1 annual indicator 1.1 Annual Indicator 1.1.1 Desired Level 1.1.1 Results Performance Percentage of assets held by FICUs with a CAMEL “Management” rating of 1 or 2 Maintain above 88 percent Goal achieved 2004 2005 2006 91.53% 2007 91.89% 91.02% 91.19% Annual Indicator 1.1.2 Desired Level 1.1.2 Results Performance Percentage of assets held by FICUs with low or moderate risk ratings in the four institutional risk areas Maintain an average for the four risk areas of at least 90 percent Goal achieved 2004 2005 2006 92.50% 2007 92.53 96.74% 94.05% Annual Indicator 1.1.3 Desired Level 1.1.3 Results Performance Percentage of FICUs that remained a CAMEL 4 or 5 for more than 12 months Maintain below 2 percent Goal achieved 2004 1.02% 2005 1.20% 2006 1.08% 2007 1.27% Annual Indicator 1.1.4 Desired Level Results Performance Percentage of assets held by FICUs with a CAMEL “Asset Quality” rating of 1 or 2 Maintain above 90 percent Goal achieved 2004 2005 2006 91.74% 2007 92.61% 91.66% 90.95% NCUA Annual Performance Summary 37 StRategic goal 1 annual indicator 1.2 Annual Indicator 1.2.1 Desired Level 1.2.1 Results Performance Percentage of assets held by FICUs with low or moderate interest rate risk ratings Maintain above 90 percent Goal achieved 2004 2005 2006 96.10% 2007 96.27% 92.90% 95.31% Annual Indicator 1.2.2 Desired Level 1.2.2 Results Performance Percentage of assets held by FICUs with low or moderate liquidity risk ratings Maintain above 95 percent Goal achieved 2004 2005 2006 94.60% 2007 95.49% 97.59% 96.46% Annual Indicator 1.2.3 Desired Level 1.2.3 Results Performance Percentage of assets held by FICUs with CAMEL “Liquidity/Asset Liability Management” rating of 1 or 2 Maintain above 90 percent Goal achieved 2004 2005 2006 93.31% 2007 93.05% 91.07% 93.85% Annual Indicator 1.2.4 Desired Level 1.2.4 Results Performance Percentage of assets held by FICUs with a CAMEL “Earnings” rating of 1 or 2 Maintain above 75 percent Goal achieved 2004 2005 2006 80.10% 2007 81.73% 79.96% 79.87% 38 NCUA Annual Performance Summary StRategic goal 2 access to financial services offered by federally insured credit unions for all eligible consumers throughout the united states. Strategic Indicator 2.1 Desired Level 2.1 Results Performance Membership Assets Loans Shares Percentage increase in total FICU membership, assets, shares and loans Increase by at least the average rate of growth for the prior two years Membership, Assets, Shares: Goal Achieved; Loans: Goal not achieved with no impact on overall program and activity performance 2004 1.38% 6.04% 2005 1.49% 4.90% 2006 1.11% 4.60% 7.87% 4.12% 2007 1.26% 6.13% 6.59% 5.19% 10.01% 10.62% 5.26% 3.83% StRategic goal 2 annual indicator 2.1 Annual Indicator 2.1.1 Desired Level 2.1.1 Growth of low-income designated credit unions’ membership, assets, shares and loans compared to all FICUs Membership growth of at least 4 times the rate of all FICUs and asset, share and loan growth of at least 1.25 times the rate of all FICUs (see Strategic Indicator 2.1) Goal achieved 2004 17.80% 2005 7.57% 2006 7.66% 10.89% 13.51% 9.99% 2007 11.19% 19.16% 16.61% 18.98% Results Performance Membership Assets Loans Shares 22.20% 11.66% 26.60% 15.05% 21.70% 10.75% Annual Indicator 2.1.2 Desired Level 2.1.2 Results Percentage increase in the number of FCU share, first mortgage and member business loan accounts Improve from prior year First mortgage accounts: Goal Achieved; Share accounts and Member business loan accounts: Goal not achieved with no impact on overall program and activity performance 2004 2.28% 3.16% 2005 4.71% 5.85% 2006 3.92% 3.49% 31.81% 2007 0.77% 4.19% 1.83% Performance Share accounts 1st Mortgage accounts Business Loan accounts 22.42% 30.46% NCUA Annual Performance Summary 39 StRategic goal 3 a prudent, flexible and efficient regulatory environment for all federally insured credit unions. Strategic Indicator 3.1 Desired Level 3.1 Results All FICUs Insured Deposits2 Consumer Credit 3 Percentage of the credit union industry’s market share of federally insured deposits and consumer credit Improve or maintain from prior year Share of insured deposits: Goal Achieved; Share of consumer credit: Goal not achieved with no impact on overall program and activity performance 2004 2005 2006 11.41% 9.70% 2007 11.57% 9.38% 12.11% 11.67% 9.71% 9.88% StRategic goal 3 annual indicator 3.1 Annual Indicator 3.1.1 Desired Level 3.1.1 Results All FICUs Real Estate Loans Member Business Lending Transactional Websites 1 2 Percentage of FICUs involved in various products and services Improve from prior year Goal achieved 2004 2005 2006 69.68% 23.04% 53.01% 2007 70.20% 25.05% 56.68% 67.58% 68.72% 18.66% 21.20% 40.75% 47.21% NCUA’s online ratios were used to provide the data included in this report. This measure was modified from total assets to deposits, to better reflect industry performance. Market share is based on the percentage of federally insured deposits held by credit unions in relation to total federally insured deposits—insured by both NCUA and FDIC. Market share of consumer credit is based on the percentage of consumer credit held by credit unions in relation to all consumer credit outstanding, as measured by the Federal Reserve. 3 40 NCUA Annual Performance Summary {We conducted our audits in accordance with auditing standards generally accepted in the United States of America. } Auditors’ Report and Financial Statements Deloitte & Touche LLP Suite 800 1750 Tysons Boulevard McLean, VA 22102-4219 USA Tel: +1 703 251 1000 Fax: +1 703 251 3400 www.deloitte.com INDEPENDENT AUDITORS’ REPORT To the Inspector General of National Credit Union Administration: We have audited the financial statements appearing on pages xx-xx of this Annual Report, respectively, 43-70 of the National Credit Union Share Insurance Fund, the National Credit Union Administration Operating Fund, the National Credit Union Administration Central Liquidity Facility, and the National Credit Union Administration Community Development Revolving Loan Fund (collectively, the “NCUA Funds”) as of and for the years ended December 31, 2007 and 2006. These financial statements are the responsibility of the National Credit Union Administration’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the NCUA Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the National Credit Union Share Insurance Fund, of the National Credit Union Administration Operating Fund, of the National Credit Union Administration Central Liquidity Facility, and of the National Credit Union Administration Community Development Revolving Loan Fund as of December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. February 13, 2008 42 Auditor’s Report NATIONAL CREDIT UNION SHARE INSURANCE FUND BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (Dollars in thousands) ASSETS ASSETS: Investments (Note 6) Cash and cash equivalents Accrued interest receivable Due from National Credit Union Administration Operating Fund (Note 8) Assets acquired in assistance to insured credit unions Loans to credit unions Note receivable — National Credit Union Administration Operating Fund (Note 8) Contributions receivable from insured credit unions Fixed assets — net of accumulated depreciation and amortization (Note 3) TOTAL LIABILITIES AND FUND BALANCE LIABILITIES: Estimated losses from supervised credit unions (Note 4) Amounts due to insured shareholders of liquidated credit unions Due to National Credit Union Administration Operating Fund (Note 8) Due to credit unions Accounts payable Obligations under capital leases (Note 9) Total liabilities FUND BALANCE: Insured credit unions’ accumulated contributions Insurance fund balance Total fund balance TOTAL See notes to financial statements. 2007 2006 $5,974,315 1,391,816 60,051 65,884 21,120 154 403 $7,513,743 $5,257,216 1,683,462 63,244 98 14,461 15,000 22,461 47 762 $7,056,751 $215,780 4,893 272 30,853 35 440 252,273 5,585,256 1,676,214 7,261,470 $7,513,743 $70,229 7,291 109 806 78,435 5,306,286 1,672,030 6,978,316 $7,056,751 - 43 - Financial Statements 43 NATIONAL CREDIT UNION SHARE INSURANCE FUND STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Dollars in thousands) 2007 2006 REVENUES: Interest Other Total revenues EXPENSES (Note 8) — Administrative expenses: Employee wages and benefits Travel Rent, communications, and utilities Contracted services Provision for insurance losses (Note 4) Other Total expenses EXCESS OF REVENUES OVER EXPENSES See notes to financial statements. $ 320,163 1,166 321,329 $ 264,895 1,326 266,221 59,237 7,764 2,174 3,379 186,397 6,664 265,615 $ 55,714 $ 61,958 7,401 2,113 3,844 2,548 6,740 84,604 181,617 NATIONAL CREDIT UNION SHARE INSURANCE FUND STATEMENTS OF FUND BALANCE FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Dollars in thousands) Insured Credit Unions’ Accumulated Contributions Insurance Fund Balance BALANCE — January 1, 2006 Contributions from insured credit unions Excess of revenues over expenses BALANCE — December 31, 2006 Contributions from insured credit unions Excess of revenues over expenses Dividends to insured credit unions BALANCE — December 31, 2007 See notes to financial statements. $5,128,031 178,255 5,306,286 278,970 $5,585,256 $1,490,413 181,617 1,672,030 55,714 (51,530) $1,676,214 44 Financial Statements - 44 - NATIONAL CREDIT UNION SHARE INSURANCE FUND STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Dollars in thousands) 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Excess of revenues over expenses Adjustments to reconcile excess of revenues over expenses to cash provided by operating activities: Depreciation and amortization Amortization of premiums and discounts on investments — net Reserves (recoveries) relating to losses from supervised credit unions — net Decrease (increase) in assets: Accrued interest receivable Assets acquired in assistance to insured credit unions — net Increase (decrease) in liabilities: Amounts due to insured shareholders of liquidated credit unions Amounts due to National Credit Union Administration Operating Fund Cash assistance liability Accounts payable Due to credit unions Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Loans to credit unions Repayment of loans to credit unions Purchases of investments Proceeds from maturities of investments Collections on note receivable — National Credit Union Administration Operating Fund Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Contributions from insured credit unions Dividends paid Principal payments under capital lease obligation Net cash provided by financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS — Beginning of year CASH AND CASH EQUIVALENTS — End of year SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES — Acquisition of equipment under capital lease CASH PAYMENTS FOR INTEREST See notes to financial statements. $ 55,714 314 (24,536) 145,551 3,193 (51,423) (2,398) 370 (74) 30,853 157,564 $ 181,617 415 1,806 (2,747) (11,142) 3,127 (966) (231) (2,357) 74 169,596 (15,000) (2,550,812) 2,100,000 1,341 (464,471) 179,948 (374) 179,574 (115,301) 1,798,763 $1,683,462 $ 1,073 5 15,000 (2,392,563) 1,700,000 1,341 (676,222) 278,863 (51,530) (321) 227,012 (291,646) 1,683,462 $1,391,816 $ $ 15 $ - 45 - Financial Statements 45 NATIONAL CREDIT UNION SHARE INSURANCE FUND NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 1. ORGANIZATION AND PURPOSE The National Credit Union Share Insurance Fund (the “Fund” or “NCUSIF”) was created by the Public Law 91-468 (Title II of the Federal Credit Union Act), which was amended in 1984 by Public Law 98-369. The Fund was established as a revolving fund in the United States Treasury under the management of the National Credit Union Administration (NCUA) Board for the purpose of insuring member share deposits in all federal credit unions and in qualifying state credit unions that request insurance. The maximum amount of insurance is $100,000 per shareholder account and $250,000 on certain retirement accounts. NCUA exercises direct supervisory authority over federal credit unions and coordinates required supervisory involvement with the state chartering authority for state-chartered credit unions insured by the Fund. Insured credit unions are required to report certain financial and statistical information to NCUA on a semiannual or quarterly basis depending on the size of the credit union and are subject to periodic examination by NCUA. Information derived through the supervisory and examination process provides the Fund with the ability to identify credit unions experiencing financial difficulties that may require assistance from the Fund. Credit unions experiencing financial difficulties may be assisted by the Fund in continuing their operations if these difficulties are considered by the Fund to be temporary or correctable. This special assistance may be in the form of a waiver of statutory reserve requirements, a guarantee account, and/or cash assistance. If continuation of the credit union’s operations with Fund assistance is not feasible, a merger partner may be sought. If the assistance or merger alternatives are not practical, the credit union is liquidated. The first form of special assistance is waivers of statutory reserve requirements, whereby the credit union is permitted to cease making additions to its regular reserve and, in more severe cases, to commence charging operating losses against its regular reserve. When all reserves have been depleted by the credit union, the Fund may provide a reserve guarantee account in the amount of the reserve deficit. In addition, the Fund may provide cash assistance in the form of share deposits and NCUSIF subordinated notes, or may purchase assets from the credit union. Mergers of financially troubled credit unions with stronger credit unions may also require Fund assistance. Merger assistance may be in the form of cash assistance, purchase of certain assets by the Fund, and/or guarantees of the values of certain assets (primarily loans). When a credit union is no longer able to continue operating and the merger and assistance alternatives are not practical, the Fund will liquidate the credit union, dispose of its assets, and pay members’ shares up to the maximum insured amount. The values of certain assets sold (primarily loans) are sometimes guaranteed to third-party purchasers by the Fund. 2. SIGNIFICANT ACCOUNTING POLICIES Investments — Title II of the Federal Credit Union Act limits the Fund’s investments to United States Government securities or securities guaranteed as to both principal and interest by the United States Government. All investments are classified as held-to-maturity under Statement of Financial Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Accordingly, the Fund records investments at amortized cost. Amortized cost is the face value of the securities, plus the unamortized premium or less the unamortized discount. Cash and Cash Equivalents — The Federal Credit Union Act permits the Fund to make investments in United States Government securities or securities guaranteed as to both principal and interest by the United States Government. Cash equivalents are highly liquid investments with original maturities of three months or less. Assets Acquired in Assistance to Insured Credit Unions — The Fund acquires the assets of liquidating credit unions pending their ultimate disposition. To assist in the merger of credit unions, the Fund may purchase certain credit union assets. In addition, the Fund may provide cash assistance by acquiring nonperforming assets of a credit union experiencing financial difficulty. These acquired assets are maintained by the Asset Management and Assistance Center in Austin, TX, and are recorded by the Fund at their estimated net realizable value. 46 Financial Statements - 46 - Advances to Insured Credit Unions — The Fund provides cash assistance in the form of interest and noninterest-bearing NCUSIF subordinated notes (carried at face value), share deposits, and loans to certain credit unions to assist them in continuing their operations. Depreciation and Amortization — Furniture and equipment are recorded at cost. Equipment acquired under capital lease agreements is recorded at the present value of the future minimum lease payments. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the furniture and equipment and the shorter of the estimated useful life or lease term for capital leases. Estimated useful lives are three years for the furniture, equipment, and capital leases. Guarantees — Guarantees are recorded in accordance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which requires the Fund to recognize, at the inception of a guarantee, a liability for the fair value of obligation undertaken in issuing the guarantee. Premium Revenue — The Fund may assess each insured credit union a premium charge for insurance in an amount stated as a percentage of insured shares outstanding as of December 31 of the preceding insurance year if the Fund’s equity ratio is less than 1.3% (Note 5). Income Taxes — The Fund is exempt from federal income taxes under Section 501(c)(1) of the Internal Revenue Code. Fair Value of Financial Instruments — The following methods and assumptions were used in estimating the fair value disclosures for financial instruments: Investments — The fair value for investments is the quoted market value. Cash and Cash Equivalents — The carrying amounts for cash and cash equivalents approximate fair values. Loans to Credit Unions — It is not practicable to estimate the fair value of these assets, as there is no secondary market. All outstanding loans are secured by a perfected lien against the assets of the credit union and are fully secured. Other — Accrued interest receivable, due from/to NCUA Operating Fund, note receivable from NCUA Operating Fund, contributions receivable from insured credit unions, due to insured shareholders of liquidated credit unions, accounts payable, and obligations under capital leases are recorded at book values, which approximate the respective fair values. Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates. The more significant estimates include the estimated losses from supervised credit unions and the allowance for loss on assets acquired in assistance to insured credit unions. 3. FIXED ASSETS At December 31, 2007 and 2006, fixed assets are comprised of the following (in thousands): 2007 2006 Furniture and equipment Equipment under capital leases Total Less — accumulated depreciation and amortization Fixed assets — net $ 501 1,027 1,528 (1,125) $ 403 $ 501 1,073 1,574 (812) $ 762 Accumulated amortization balances for equipment under capital leases as of December 31, 2007 and 2006, totaled (in thousands) $624 and $311, respectively. - 47 - Financial Statements 47 4. PROVISION FOR INSURANCE LOSSES Management identifies credit unions experiencing financial difficulty through NCUA’s supervisory and examination process. The estimated losses from these supervised credit unions are determined by management on a specified case basis. Management also evaluates overall economic trends and monitors potential system-wide risk factors such as increasing levels of consumer debt, bankruptcies, and delinquencies. NCUA applies a rating system to assess a credit union’s financial condition and operations in the areas of Capital Adequacy, Asset Quality, Management, Earnings, and Asset/Liability Management (“CAMEL”). The CAMEL Rating System is a tool to measure risk and allocate resources for supervisory purposes. NCUA periodically reviews the CAMEL Rating System to respond to continuing economic and regulatory changes in the credit union industry. For nonspecified case reserve requirements, risk profile categories are established based on the CAMEL ratings of problem credit unions, and probable failure and loss rates are applied based on historical data. The anticipated losses are net of estimated recoveries from the disposition of the assets of failed credit unions. Total estimated insurance in force as of December 31, 2007 and 2006 is $561.9 billion and $535.3 billion, respectively, which includes natural person and corporate credit unions. The total net reserves for identified and anticipated losses from supervised credit unions’ failures are $216 million and $70 million at December 31, 2007 and 2006, respectively. In exercising its supervisory function, the Fund will, at times, extend guarantees of assets (primarily loans) to third-party purchasers or to credit unions to facilitate mergers. The Fund would be obligated upon nonperformance. No such guarantees were outstanding at December 31, 2007 and 2006. The estimated losses from asset and merger guarantees are determined by management on a case-by-case evaluation. In addition, the Fund may grant a guaranteed line-of-credit to a third-party credit provider, such as a corporate credit union or bank, if a credit union has a current or immediate liquidity concern and the credit provider has refused to extend credit without a guarantee. The Fund would be obligated if the credit union failed to perform. Total line-of-credit guarantees of credit unions at December 31, 2007 and 2006 are approximately $206.5 million and $20 million, respectively. The total balances outstanding under these line-of-credit guarantees at December 31, 2007 and 2006 are approximately $109.5 million and $0, respectively. The carrying amount of the liability as of December 31, 2007 and 2006 for the outstanding NCUSIF guarantees is $5.1 million and $422,876, respectively. All guarantees outstanding at December 31, 2007 expire on March 31, 2008 and May 31, 2008. From time to time, the Fund provides indemnifications in merger assistance agreements to acquiring credit unions. Such indemnifications make the Fund contingently liable based on the outcome of legal actions. No such indemnification contingencies existed at December 31, 2007 and 2006. The activity in the reserves for estimated losses from supervised credit unions for the periods ended December 31, 2007 and 2006 was as follows (in thousands): 2007 2006 Beginning balance Insurance losses Recoveries Provision for insurance losses Ending balance The increase in the provision for insurance losses is due to the following: $ 70,229 (48,484) 7,638 186,397 $215,780 $72,976 (10,833) 5,538 2,548 $70,229 Specific reserves — increased from $19,062,296 at December 31, 2006, to $161,630,199 at December 31, 2007. General reserves — increased from $51,167,075 at December 31, 2006, to $54,150,000 at December 31, 2007. The increased level of specific reserves is attributable to the presence of high-risk business activities of a small number of credit unions that were vulnerable to adverse economic and market conditions. The higher provision for insurance losses is also attributed to the deterioration in economic conditions. 48 Financial Statements - 48 - In addition to these recorded contingent liabilities, additional risk in the financial services industry could result in additional loss to the NCUSIF. The accuracy of the estimated losses from supervised credit unions will largely depend upon future economic and market conditions. 5. FUND CAPITALIZATION The Credit Union Membership Access Act of 1998 (CUMAA) mandated changes to the Fund’s capitalization provisions effective January 1, 2000. Each insured credit union shall pay to and maintain with the Fund a deposit in an amount equaling 1% of the credit union’s insured shares. The amount of each insured credit union’s deposit shall be adjusted as follows, in accordance with procedures determined by the NCUA Board, to reflect changes in the credit union’s insured shares: (i) annually, in the case of an insured credit union with total assets of not more than $50 million; and (ii) semiannually, in the case of an insured credit union with total assets of $50 million or more. The annual and semiannual adjustments are based on member share deposits outstanding as of December 31 of the preceding year and June 30 of the current year, respectively. The 1% contribution will be returned to the insured credit union in the event that its insurance coverage is terminated, or is obtained from another source, or the operations of the Fund are transferred from the NCUA Board. The CUMAA mandates certain premium charges from insured credit unions and distributions from the Fund under certain circumstances. A premium charge to insured credit unions is required if the Fund’s equity ratio (as defined in the CUMAA) falls below 1.2% of insured shares. Also, pro-rata distributions to insured credit unions after each calendar year are required if, as of year-end: (i) Any loans to the Fund from the Federal Government, and any interest on those loans, have been repaid; (ii) The Fund’s equity ratio exceeds the normal operating level (as defined in the CUMAA, an equity ratio specified by the NCUA Board, which shall be not less than 1.2% and not more than 1.5%); and (iii) The Fund’s available assets ratio, as defined in the CUMAA, exceeds 1%. The NCUA Board set the normal operating level for 2008 and 2007 at 1.30%. The calculated equity ratios at December 31, 2007 and 2006 were 1.292% and 1.304%, respectively. Beginning in 2000, the CUMAA mandates that dividends are determined from specific ratios, which are based upon year-end reports of insured shares. Accordingly, dividends associated with insured shares at year-end are declared and paid in the subsequent year. The NCUA Board will not declare dividends payable on insured shares as of December 31, 2007, because the equity ratio of 1.292% is below the normal operating level of 1.30%. Dividends of $51,530 were declared and paid during 2007 because the equity ratio at December 31, 2006, of 1.304% was above the normal operating ratio of 1.30%. Total insured shares as of December 31, 2007 and 2006, were estimated to be $561.9 billion and $535.3 billion, respectively. - 49 - Financial Statements 49 6. INVESTMENTS All cash received by the Fund that is not used for outlays related to assistance to insured credit unions and liquidation activities is invested in U.S. Treasury securities. At December 31, 2007 and 2006, investments consist of the following (in thousands): Yield to Maturity at Market (At Purchase Date) 2007 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Market Value U.S. Treasury Securities: Maturities up to one year Maturities after one year through five years Total 4.26 % 4.53 % $1,594,463 4,379,852 $5,974,315 $ 8,709 143,570 $ - $1,603,172 4,523,422 $6,126,594 $152,279 2006 $ - Yield to Maturity at Market (At Purchase Date) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Market Value U.S. Treasury Securities: Maturities up to one year Maturities after one year through five years Total 2.96 % 4.48 % $1,703,200 3,554,016 $5,257,216 $ - $(13,138) (11,891) $(25,029) $1,690,062 3,542,125 $5,232,187 $ - Total investment purchases during 2007 and 2006 were approximately $2.4 billion and $2.6 billion, respectively. Investment maturities during 2007 and 2006 were approximately $1.7 billion and $2.1 billion, respectively. The Fund has the capability and management has the intention to hold all investments held at December 31, 2007 and 2006, to maturity. There were no investment sales during 2007 and 2006. 7. AVAILABLE BORROWINGS The Fund is authorized by the Federal Credit Union Act to borrow from the Treasury of the United States, upon authorization by the NCUA Board, up to a maximum of $100,000,000. The NCUA Central Liquidity Facility is authorized to make advances to the Fund under terms and conditions established by the NCUA Board. No borrowings were obtained from these sources during 2007 and 2006. 8. TRANSACTIONS WITH NCUA OPERATING FUND Substantial administrative services are provided to the Fund by the NCUA Operating Fund. The NCUA Operating Fund charges the Fund for these services based on an annual allocation factor approved by the NCUA Board and derived from a study of actual usage conducted by the management of these Funds. The allocation factor was 53.3% to the Fund for 2007 and 57% for 2006. The cost of services provided by the NCUA Operating Fund was approximately $77,766,000 and $80,642,000 for 2007 and 2006, respectively, and includes pension contributions of approximately $6,368,000 and $6,629,000 to the Civil Service Retirement System and Federal Employees Retirement System defined benefit retirement plans for 2007 and 2006, respectively. In 1992, the Fund entered into a commitment to fund up to $41,975,000 through a thirty-year secured term note with the NCUA Operating Fund. The monies were advanced to the NCUA Operating Fund as needed to fund the costs of constructing a building. Interest income was approximately $967,000 and $873,000 for 2007 and 2006, respectively. The note receivable balances at December 31, 2007 and 2006 were approximately $21,120,000 and $22,461,000, respectively. 50 Financial Statements - 50 - The above note matures as follows (in thousands): Years Ending December 31 Secured Term Note 2008 2009 2010 2011 2012 Thereafter Total $ 1,341 1,341 1,341 1,341 1,341 14,415 $21,120 The variable rate on the term note is equal to the Fund’s prior-month yield on investments. The average interest rates during 2007 and 2006 were approximately 4.45% and 3.79%, respectively. At December 31, 2007 and 2006, the rates were 4.39 % and 4.29%, respectively. The NCUA Operating Fund leases certain office space and equipment under operating lease agreements that expire through 2014. Based on the allocation factor determined by the NCUA’s Board, the Fund reimbursed the NCUA Operating Fund approximately 53.3% of the total lease payments. The cost of services provided by the NCUA Operating Fund includes rental charges of approximately $395,200 and $422,700 for December 31, 2007 and 2006, respectively. Based on the allocation factor approved by the NCUA Board for 2008, NCUSIF will reimburse the Fund for approximately 52% of the future operating lease payments. The Fund’s allocation of the NCUA Operating Fund’s total future minimum lease payments on operating leases as of December 31, 2007, is expected to be as follows (in thousands): Years Ending December 31 2008 2009 2010 2011 2012 Thereafter Total 9. LEASE COMMITMENTS $ 384 393 249 253 249 206 $1,734 Description of Leasing Agreements — The Fund has entered into lease agreements with vendors for the lease of equipment that includes computers, laptops, and printers. The Fund leases computer equipment under capital lease agreements that expire through 2009. A schedule of future minimum lease payments as of December 31, 2007, is as follows (in thousands): 2008 2009 Total Less imputed interest Present value of minimum lease payments $360 90 450 (10) $440 - 51 - Financial Statements 51 10. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount and the estimated fair value of the Fund’s financial instruments, at December 31, 2007 and 2006 are as follows: Carrying Amount 2007 Fair Value 2006 Carrying Amount Fair Value Investments Cash and cash equivalents Accrued interest receivable Loans to credit unions Notes receivable — NCUA Operating Fund Contributions receivable from insured credit unions Amounts due to insured shareholders of liquidated credit unions Due (to) from NCUA Operating Fund Accounts payable Obligations under capital leases 11. CONCENTRATIONS $5,974,315 1,391,816 60,051 21,120 154 4,893 (272) 30,888 440 $6,126,594 1,391,816 60,051 21,120 154 4,893 (272) 30,888 440 $5,257,216 1,683,462 63,244 15,000 22,461 47 7,291 98 109 806 $5,232,187 1,683,462 63,244 15,000 22,461 47 7,291 98 109 806 There are no significant concentrations of member share deposits within any region of the United States. Concentrations of member shares do exist within the manufacturing, governmental, and educational industries. 12. CONTINGENCIES The Fund is currently a party to a number of disputes that involve or may involve litigation. In the opinion of management, the ultimate liability with respect to any other disputes, if any, will not be material to the Fund’s financial position. ****** 52 Financial Statements - 52 - NATIONAL CREDIT UNION ADMINISTRATION OPERATING FUND BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (Dollars in thousands) ASSETS Cash and cash equivalents Due from National Credit Union Share Insurance Fund (Note 4) Employee advances Other accounts receivable (Note 5) Prepaid expenses and other assets Fixed assets — net of accumulated depreciation and amortization (Note 3) TOTAL LIABILITIES AND FUND BALANCE LIABILITIES: Accounts payable Obligations under capital leases (Note 6) Accrued wages and benefits Accrued annual leave Accrued employee travel Due to National Credit Union Share Insurance Fund Note payable to National Credit Union Share Insurance Fund (Note 4) Total liabilities FUND BALANCE (Note 11) TOTAL See notes to financial statements. 2007 2006 $24,175 272 143 169 1,799 34,213 $60,771 $25,394 902 172 1,683 35,309 $63,460 $ 4,216 1,246 3,225 8,575 5 21,120 38,387 22,384 $60,771 $ 3,817 2,138 2,571 8,319 11 98 22,461 39,415 24,045 $63,460 - 53 - Financial Statements 53 NATIONAL CREDIT UNION ADMINISTRATION OPERATING FUND STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN FUND BALANCE FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Dollars in thousands) 2007 2006 REVENUES: Operating fees Interest Other Total revenues EXPENSES (Note 4): Employee wages and benefits Travel Rent, communications, and utilities Contracted services Other Total expenses EXCESS OF (EXPENSES OVER REVENUES) REVENUES OVER EXPENSES FUND BALANCE — Beginning of year FUND BALANCE — End of year See notes to financial statements. $63,961 2,213 303 66,477 51,902 6,802 1,905 2,961 4,568 68,138 (1,661) 24,045 $22,384 $63,577 2,203 179 65,959 46,740 5,583 1,594 2,900 4,018 60,835 5,124 18,921 $24,045 54 Financial Statements - 54 - NATIONAL CREDIT UNION ADMINISTRATION OPERATING FUND STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Dollars in thousands) 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Excess of (expenses over revenues) revenues over expenses Adjustments to reconcile excess of (expenses over revenues) revenues over expenses to net cash provided by operating activities: Depreciation and amortization Provision for loss on disposal of employee residences held for resale Loss on disposal of fixed assets (Increase) decrease in assets: Due from National Credit Union Share Insurance Fund Employee advances Other accounts receivable Prepaid expenses (Decrease) increase in liabilities: Accounts payable Accrued wages and benefits Accrued annual leave Accrued employee travel Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets Purchases of employee residences held for sale Proceeds from sale of employee residences held for resale Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of note payable Principal payments under capital lease obligations Net cash used in financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS — Beginning of year CASH AND CASH EQUIVALENTS — End of year SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES — Acquisition of equipment under capital lease CASH PAYMENTS FOR INTEREST See notes to financial statements. $ (1,661) 3,312 280 (370) 759 3 (156) 399 654 256 (6) 3,470 (2,250) (1,530) 1,290 (2,490) (1,341) (858) (2,199) (1,219) 25,394 $24,175 $ 83 $ 5,124 3,719 261 1 231 (67) 308 (237) (2,582) (3,820) 122 (9) 3,051 (1,049) (1,839) 813 (2,075) (1,341) (971) (2,312) (1,336) 26,730 $25,394 $ 2,781 $ 889 $ 1,095 - 55 - Financial Statements 55 NATIONAL CREDIT UNION ADMINISTRATION OPERATING FUND NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 1. ORGANIZATION AND PURPOSE The National Credit Union Administration Operating Fund (the “Fund”) was created by the Federal Credit Union Act of 1934. The Fund was established as a revolving fund in the United States Treasury under the management of the National Credit Union Administration (NCUA) Board for the purpose of providing administration and service to the Federal Credit Union System. 2. SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents — The Federal Credit Union Act permits the Fund to make investments in United States Government securities or securities guaranteed as to both principal and interest by the United States Government. Cash equivalents are highly liquid investments with original maturities of three months or less. All investments in 2007 and 2006 were cash equivalents and are stated at cost, which approximates fair value. Depreciation and Amortization — Building, furniture, equipment and leasehold improvements are recorded at cost. Capital leases are recorded at the present value of the future minimum lease payments. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the building, furniture, and equipment, and the shorter of the estimated useful life or lease term for leasehold improvements and capital leases. Estimated useful lives are forty years for the building and three to ten years for the furniture, equipment, and leasehold improvements. Operating Fees — The Fund assesses each federally chartered credit union an annual fee based on the credit union’s asset base as of the preceding December 31. The fee is designed to cover the costs of providing administration and service to the Federal Credit Union System. The Fund recognizes this operating fee revenue ratably over the year. Income Taxes — The Fund is exempt from Federal income taxes under Section 501(c) (1) of the Internal Revenue Code. Fair Value of Financial Instruments — The following methods and assumptions were used in estimating the fair value disclosures for financial instruments: Cash and cash equivalents, receivables from National Credit Union Share Insurance Fund (NCUSIF) and National Credit Union Administration Central Liquidity Facility (NCUA CLF), employee advances, other accounts receivable, accounts and notes payable to NCUSIF, and other accounts payable are recorded at book values, which approximate the respective fair values. Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates. 56 Financial Statements - 56 - 3. FIXED ASSETS Fixed assets are comprised of the following at December 31, 2007 and 2006 (in thousands): 2007 2006 Office building and land Furniture and equipment Equipment under capital leases Assets under construction Total Less — accumulated depreciation and amortization Fixed assets — net $43,358 12,812 2,846 320 59,336 (25,123) $34,213 $42,651 11,900 2,983 139 57,673 (22,364) $35,309 Accumulated amortization balances for equipment under capital leases as of December 31, 2007 and 2006, were (in thousands) $1,718 and $964, respectively. 4. TRANSACTIONS WITH NCUSIF Certain administrative services are provided by the Fund to NCUSIF. The Fund charges NCUSIF for these services based upon an annual allocation factor approved by the NCUA Board and derived from a study of actual usage. The allocation factor to NCUSIF was 53.3% in 2007 and 57% in 2006. The cost of the services allocated to NCUSIF, which totaled approximately $77,766,000 and $80,642,000 for 2007 and 2006, respectively, is reflected as a reduction of the corresponding expenses in the accompanying financial statements. In 1992, the Fund entered into a commitment to borrow up to $41,975,000 in a thirty-year secured term note with NCUSIF. The monies were drawn as needed to fund the costs of constructing a building in 1993. Interest costs incurred were approximately $967,000 and $873,000 for 2007 and 2006, respectively. The note payable balances at December 31, 2007, and 2006, were approximately $21,120,000 and $22,461,000, respectively. The above note requires principal repayments at December 31, 2007 as follows (in thousands): Years Ending December 31 Secured Term Note 2008 2009 2010 2011 2012 Thereafter Total $ 1,341 1,341 1,341 1,341 1,341 14,415 $21,120 The variable rate on the note is equal to NCUSIF’s prior-month yield on investments. The average interest rates during 2007 and 2006 were 4.45% and 3.79%, respectively. The interest rates at December 31, 2007, and 2006, were 4.39% and 4.29%, respectively. 5. TRANSACTIONS WITH NCUA CLF Certain administrative services are provided by the Fund to NCUA CLF. The Fund charges NCUA CLF for these services based upon rates approved by the NCUA Board. The costs of the services provided to NCUA CLF were $240,000 and $253,000 for 2007 and 2006, respectively, and are reflected as a reduction of the corresponding expenses in the accompanying financial statements. Other accounts receivable include approximately $103,000 and $95,000 of amounts due from NCUA CLF as of December 31, 2007, and 2006, respectively. 6. LEASE COMMITMENTS Description of Leasing Agreements — The Fund has entered into a number of lease agreements with vendors for the rental of office space, as well as the lease of office equipment that includes laptops, printers, monitors, and copiers. - 57 - Financial Statements 57 Operating Leases — The Fund leases office space under lease agreements that expire through 2014. Office rental charges amounted to approximately $741,500 and $741,600 of which approximately $395,200 and $422,700 was reimbursed by NCUSIF for 2007 and 2006, respectively. In addition, the Fund leases office equipment under operating leases with lease terms of less than one year. Capital Leases — The Fund leases equipment under lease agreements that expire through 2012. The future minimum lease payments as of December 31, 2007, are as follows (in thousands): Years Ending December 31 Operating Leases Capital Leases 2008 2009 2010 2011 2012 Thereafter Total Less imputed interest Present value of minimum lease payments $ 739 756 479 487 479 395 $3,335 $ 970 258 18 18 6 1,270 (24) $1,246 Based on the allocation factor approved by the NCUA Board for 2008, NCUSIF will reimburse the Fund for approximately 52% of the future operating lease payments. 7. RETIREMENT PLANS The employees of the Fund are participants in the Civil Service Retirement and Disability Fund, which includes the Federal Employees’ Retirement System (FERS). Both plans are defined benefit retirement plans covering all of the employees of the Fund. FERS is comprised of a Social Security Benefits Plan, a Basic Benefits Plan, and a Savings Plan. Contributions to the plans are based on a percentage of employees’ gross pay. Under the Savings Plan, employees can also elect additional contributions, subject to Internal Revenue Service (IRS) limitations, and the Fund will match up to 5% of the employees’ gross pay. In 2007 and 2006, the Fund’s contributions to the plans were approximately $11,947,000 and $11,630,000, respectively, of which approximately $6,368,000 and $6,629,000, respectively, were reimbursed by NCUSIF. The Fund does not account for the assets of the above plans and does not have actuarial data with respect to accumulated plan benefits or the unfunded liability relative to eligible employees. These amounts are reported by the U.S. Office of Personnel Management for the Civil Service Retirement and Disability Fund and are not allocated to individual employers. 8. DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount and the estimated fair value of the Fund’s financial instruments are as follows (in thousands): December 31, 2007 Carrying Fair Amount Value December 31, 2006 Carrying Fair Amount Value Cash and cash equivalents Due from NCUSIF Due to NCUSIF Employee advances Other accounts receivable Accounts payable Obligation under capital lease Note payable to NCUSIF $24,175 272 143 169 4,216 1,246 21,120 $24,175 272 143 176 4,216 1,246 21,120 $25,394 98 902 172 3,817 2,138 22,461 $25,394 98 902 172 3,817 2,138 22,461 58 Financial Statements - 58 - 9. CONTINGENCIES The Fund is currently a party to a number of disputes that involve or may involve litigation. In the opinion of management, the ultimate liability with respect to any other disputes, if any, will not be material to the Fund’s financial position. 10. HURRICANE RELATED MATTERS As part of its regulatory relief and forbearance efforts for credit unions and their members impacted by hurricanes, the NCUA Board allowed credit unions that are located in hurricane-affected areas to pay an operating fee that was based on assets that excluded hurricane-related Federal Emergency Management Agency and insurance payouts. This resulted in a reduction in operating fee collections in the amount of $45,000 and $167,000 during 2007 and 2006, respectively. The NCUA Board does not plan to allow hurricane-affected credit unions to pay a reduced operating fee in 2008. 11. RETAINED EARNINGS APPROPRIATION In 2006, the NCUA Board established an appropriation of the Fund’s fund balance in an effort to more transparently disclose and communicate to stakeholders earnings that are needed for major projects that cannot be accrued or that do not warrant inclusion in the annual operating expense budget. The initial appropriation of $1,000,000 is for repairs and maintenance on NCUA’s Alexandria headquarters building. In 2007, this amount did not change. ****** - 59 - Financial Statements 59 NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (In thousands) ASSETS ASSETS: Cash Investments with U.S. Central Federal Credit Union (Notes 5, 8, 9, and 11) Accrued interest receivable TOTAL LIABILITIES AND MEMBERS’ EQUITY LIABILITIES: Accounts payable and other liabilities Dividends payable (Note 7) Member deposits (Note 7) Total liabilities MEMBERS’ EQUITY: Capital stock — required (Note 7) Retained earnings Total members’ equity TOTAL See notes to financial statements. $ $ 2007 2006 12 1,638,285 23,922 $ 12 1,549,678 21,386 $1,662,219 $1,571,076 132 23,777 642 24,551 1,626,260 11,408 $ 130 21,267 622 22,019 1,537,649 11,408 1,637,668 $1,662,219 1,549,057 $1,571,076 60 Financial Statements - 60 - NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands) 2007 2006 REVENUE: Investment income Interest — loans to members (Note 6) Total revenue EXPENSES (Note 10): Personnel services Other services Rent, communications, and utilities Personnel benefits Supplies and materials Printing and reproduction Total operating expenses Interest — Federal Financing Bank loans (Note 6) Interest — liquidity reserve Total expenses EXCESS OF REVENUE OVER EXPENSES See notes to financial statements. $89,259 89,259 144 48 10 33 1 4 240 53 $78,213 75 78,288 141 63 8 33 3 5 253 75 37 365 $77,923 293 $88,966 NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY STATEMENTS OF MEMBERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands) Capital Stock Retained Earnings BALANCE — January 1, 2006 Issuance of required capital stock Redemption of required capital stock Dividends Excess of revenue over expenses BALANCE — December 31, 2006 Issuance of required capital stock Redemption of required capital stock Dividends Excess of revenue over expenses BALANCE — December 31, 2007 See notes to financial statements. $1,458,445 81,143 (1,939) 1,537,649 89,709 (1,098) $1,626,260 $11,408 (77,923) 77,923 11,408 (88,966) 88,966 $11,408 - 61 - Financial Statements 61 NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands) 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Excess of revenue over expenses Adjustments to reconcile excess of revenue over expenses to net cash provided by operating activities: Increase in accrued interest receivable Increase in accounts payable and other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES — Purchase of investments — net CASH FLOWS FROM FINANCING ACTIVITIES: Additions to member deposits Issuance of required capital stock Dividends Withdrawal of member deposits Redemption of required capital stock Net cash provided by financing activities NET INCREASE IN CASH CASH — Beginning of year CASH — End of year SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION — Cash paid during the year for interest See notes to financial statements. $88,966 (2,536) 2 86,432 (88,607) 1,872 89,709 (86,456) (1,852) (1,098) 2,175 12 $ $ 12 52 $77,923 (6,829) 10 71,104 (79,288) 1,578 81,143 (71,131) (1,465) (1,939) 8,186 2 10 $ $ 12 108 62 Financial Statements - 62 - NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 1. ORGANIZATION AND PURPOSE The National Credit Union Administration Central Liquidity Facility (CLF) was created by the National Credit Union Central Liquidity Facility Act (the “Act”). CLF is designated as a mixedownership government corporation under the Government Corporation Control Act. CLF exists within the National Credit Union Administration (NCUA) and is managed by the National Credit Union Administration Board. CLF became operational on October 1, 1979. The purpose of CLF is to improve general financial stability by meeting the liquidity needs of credit unions. CLF is a tax-exempt organization under Section 501(c)(1) of the Internal Revenue Code. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting — CLF maintains its accounting records on the accrual basis of accounting. Loans and Allowance for Loan Losses — Loans, when made to members, are on a short-term or long-term basis. For all loans, CLF may obtain a security interest in the assets of the borrower. In determining the allowance for loan losses, when applicable, CLF evaluates the collectibility of its loans to members through examination of the financial condition of the individual borrowing credit unions and the credit union industry in general. Funds on Deposit with U.S. Central Federal Credit Union — CLF invests in redeposits and share accounts at U.S. Central Federal Credit Union (USC) (Notes 5 and 9). These are nontransferable, nonnegotiable instruments that are acquired at face value and carried at cost. Fair Value of Financial Instruments — The following methods and assumptions were used in estimating the fair value disclosures for financial instruments: Cash — The carrying amounts for cash approximate fair value. Investments — Fair values of financial instruments with maturities over one year are computed using the market rate of interest at year-end. For financial instruments with maturities of one year or less, the carrying amounts approximate fair value. Loans — For loans advanced to member credit unions, the carrying amounts approximate fair value. Member Deposits — Funds maintained with the CLF in excess of required capital amounts are recorded as member deposits. These deposits are due upon demand, and the carrying amounts approximate the fair value. FFB Notes Payable — For notes issued to the Federal Financing Bank (FFB), when applicable, the carrying amounts approximate fair value. Other — Accrued interest receivable, accounts payable, and other liabilities are recorded at book values, which approximate the respective fair values. Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates. 3. GOVERNMENT REGULATIONS CLF is subject to various Federal laws and regulations. CLF’s operating budget requires Congressional approval, and CLF may not make loans to members for the purpose of expanding credit union loan portfolios. CLF’s investments are restricted to obligations of the U.S. Government and its agencies, deposits in federally insured financial institutions, and shares and deposits in credit unions. Borrowing is limited by statute to 12 times the subscribed capital stock and surplus. - 63 - Financial Statements 63 However, there is a Congressional limitation of $1.5 billion on funds that are borrowed and then loaned out to credit unions at any one point in time. At December 31, 2007 and 2006, CLF was in compliance with its borrowing authority. Borrowings would be from the FFB with interest generally payable upon maturity (Note 6). 4. LOANS TO MEMBERS There were no loans or loan commitments outstanding at December 31, 2007 and 2006. CLF can provide members with extended loan commitments. 5. FUNDS ON DEPOSIT WITH U.S. CENTRAL FEDERAL CREDIT UNION Funds not currently required for operations at December 31, 2007 and 2006, are invested as follows (in thousands): 2007 2006 U.S. Central Federal Credit Union Share Account U.S. Central Federal Credit Union Share Certificates $1,632,285 6,000 $1,638,285 $1,545,678 4,000 $1,549,678 A Memorandum of Understanding (MOU), effective July 1, 2005, sets forth the understanding of CLF and the USC concerning the investments by CLF in USC Share Account and Certificates. As provided in the MOU, all investments by CLF in shares of USC will be in either the Share Account or Share Certificates. The Share Account is a three-month, fixed rate account that provides for automatic re-investment at maturity and daily availability of funds with no penalty for early withdrawal. The Share Account is only available to CLF. In the event of liquidation of the USC, shares in the account will be redeemable in full, prior to the redemption of any other shares of USC. The Share Certificates are fixed rate, with a maturity fixed upon issuance (three or five years under the current MOU). Redemption prior to maturity is permitted, in whole or in part, if the CLF requests early redemption and if the USC and the CLF agree on an early redemption value. The Share Certificates are neither negotiable nor assignable. 6. BORROWING AUTHORITY CLF is authorized by statute to borrow, from any source, an amount not to exceed 12 times its subscribed capital stock and surplus. On July 15, 1999, the National Credit Union Administration signed a note purchase agreement with the Federal Financing Bank on behalf of CLF. The first promissory note under that note purchase agreement originally provided for a commitment of $20.7 billion. Subsequently, the note purchase agreement expired on September 30, 2000, and was extended through amendments annually. The amount of each promissory note was reduced to $5 billion and expires yearly on the 31st of March. The current promissory note expires March 31, 2008. Congress, however, has restricted CLF’s borrowing authority to $1.5 billion for the fiscal years 2006, 2007 and 2008, for the principal amount of new direct loans to member credit unions. Borrowings would be from the Federal Financing Bank with interest generally payable upon maturity. During 2006, CLF borrowed amounts totaling $6,210,600 from the Federal Financing Bank under two separate loan agreements, which it, in turn, loaned to a member credit union. All amounts borrowed during 2006 were repaid by December 31, 2006. No borrowing or lending occurred during 2007. The Secretary of the Treasury is authorized by the Act to lend up to $500 million to CLF in the event that the NCUA Board certifies to the Secretary that CLF does not have sufficient funds to meet the liquidity needs of credit unions. This authority to lend is limited to such extent and in such amounts as are provided in advance by Congressional Appropriation Acts. On December 23, 1981, the President signed PL 97-101, which provided $100 million of permanent indefinite borrowing authority that may be provided by the Secretary of the Treasury to CLF to meet emergency liquidity needs of credit unions. 7. CAPITAL STOCK AND MEMBER DEPOSITS The required capital stock account represents subscriptions remitted to CLF by member credit unions. Regular members’ required subscription amounts equal one-half of one percent of their paidin and unimpaired capital and surplus, one-half of which is required to be remitted to CLF. Agent 64 Financial Statements - 64 - members’ required subscription amounts equal one-half of one percent of the paid-in and unimpaired capital and surplus of all of the credit unions served by the agent member, one-half of which is required to be remitted to CLF. In both cases, the remaining one-half of the subscription is required to be held in liquid assets by the member credit unions subject to call by the NCUA Board. These unremitted subscriptions are not reflected in CLF’s financial statements. Subscriptions are adjusted annually to reflect changes in the member credit unions’ paid-in and unimpaired capital and surplus. Dividends are declared and paid on required capital stock. Member deposits represent amounts remitted by members over and above the amount required for membership. Interest is paid on member deposits at a rate equivalent to the dividend rate paid on required capital stock. Dividends payable represents dividends declared in 2007 and 2006 to be paid in 2008 and 2007, respectively. 8. U.S. CENTRAL FEDERAL CREDIT UNION MEMBERSHIP During fiscal year 1984, CLF accepted a membership request from USC on behalf of its corporate credit union members. At December 31, 2007 and 2006, $1,565,647,000 and $1,479,256,000, respectively, of the required portion of subscribed capital stock were purchased from CLF by USC on behalf of member credit unions of its corporate credit union members. The USC has 26 and 28 corporate credit union members as of December 31, 2007 and 2006, respectively. CLF reinvests all of its agent member share capital in USC at market rates of interest. At December 31, 2007 and 2006, approximately $1,638,285,000 and $1,549,678,000, respectively, were invested in USC accounts at 5.77% and 5.46% respective yields, respectively. 9. CONCENTRATION OF CREDIT RISK At December 31, 2007 and 2006, CLF has a concentration of credit risk for its investments on deposit with USC of approximately $1,638,285,000 and $1,549,678,000, respectively (see Notes 5 and 8). 10. SERVICES PROVIDED BY THE NATIONAL CREDIT UNION ADMINISTRATION The NCUA provides CLF with data processing and other miscellaneous services and supplies. In addition, the NCUA pays CLF’s employees’ salaries and benefits as well as CLF’s portion of monthly building operating costs. CLF reimburses the NCUA on a monthly basis for these items. The total amounts charged by the NCUA were approximately $240,000 and $253,000 for the years ended December 31, 2007 and 2006, respectively. As of December 31, 2007 and 2006, accounts payable and other liabilities include approximately $103,000 and $95,000, respectively, due to the NCUA Operating Fund for services provided. 11. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount and the estimated fair value of CLF’s financial instruments at December 31, 2007 and 2006, are as follows (in thousands): December 31, 2007 Carrying Fair Amount Value December 31, 2006 Carrying Fair Amount Value Cash Funds on deposit with U.S. Central Federal Credit Union Accrued interest receivable Accounts payable and other liabilities Dividends payable Member deposits $ 12 1,638,285 23,922 132 23,777 642 ****** $ 12 1,638,473 23,922 132 23,777 642 $ 12 1,549,678 21,386 130 21,267 622 $ 12 1,549,668 21,386 130 21,267 622 - 65 - Financial Statements 65 NATIONAL CREDIT UNION ADMINISTRATION COMMUNITY DEVELOPMENT REVOLVING LOAN FUND BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 ASSETS CASH AND CASH EQUIVALENTS LOANS — Net of allowance (Note 4) INTEREST RECEIVABLE TOTAL LIABILITIES AND FUND BALANCE LIABILITIES — Accrued technical assistance FUND BALANCE: Revolving fund capital (Note 3) Accumulated earnings Total fund balance TOTAL See notes to financial statements. 2007 2006 $ 2,931,422 13,292,065 30,154 $16,253,641 $ 8,668,980 7,386,864 17,703 $16,073,547 $ 1,308,135 13,435,642 1,509,864 14,945,506 $16,253,641 $ 1,091,418 13,435,642 1,546,487 14,982,129 $16,073,547 NATIONAL CREDIT UNION ADMINISTRATION COMMUNITY DEVELOPMENT REVOLVING LOAN FUND STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 2007 2006 SUPPORT AND REVENUES: Interest on cash equivalents Interest on loans Appropriation revenue Total support and revenues EXPENSES: Technical assistance Recoveries of loan losses Total expenses EXCESS OF (EXPENSES OVER SUPPORT AND REVENUES) SUPPORT AND REVENUES OVER EXPENSES See notes to financial statements. $ 264,661 98,113 940,500 1,303,274 1,436,889 (96,992) 1,339,897 $ 451,184 57,271 892,636 1,401,091 1,224,956 (20,180) 1,204,776 $ (36,623) $ 196,315 66 Financial Statements - 66 - NATIONAL CREDIT UNION ADMINISTRATION COMMUNITY DEVELOPMENT REVOLVING LOAN FUND STATEMENTS OF CHANGES IN FUND BALANCE FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 2007 2006 FUND BALANCE — Beginning of year Change in unexpended appropriations: Operating appropriations received (Note 3) Rescission of appropriations received (Note 3) Appropriation revenue recognized (Note 3) Excess of (expenses over support and revenues) support and revenues over expenses FUND BALANCE — End of year See notes to financial statements. $14,982,129 940,500 (940,500) (36,623) $14,945,506 $15,687,950 (9,500) (892,636) 196,315 $14,982,129 NATIONAL CREDIT UNION ADMINISTRATION COMMUNITY DEVELOPMENT REVOLVING LOAN FUND STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Excess of (expenses over support and revenues) support and revenues over expenses Adjustments to reconcile the excess of (expenses over support and revenues) support and revenues over expenses to net cash used in operating activities: Change in unexpended appropriations Reduction of allowance for loan losses — net of recoveries Changes in assets and liabilities: Increase in interest receivable Increase in accrued technical assistance Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Loan principal repayments Loan disbursements Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Appropriations received Recession of appropriations received Net cash provided by (used in) financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS — Beginning of year CASH AND CASH EQUIVALENTS — End of year See notes to financial statements. $ (36,623) $ 196,315 (940,500) (12,451) 216,717 (772,857) 1,853,386 (7,758,587) (5,905,201) 940,500 940,500 (5,737,558) 8,668,980 $2,931,422 (892,636) (20,180) (6,410) 254,153 (468,758) 1,331,863 (4,144,500) (2,812,637) (9,500) (9,500) (3,290,895) 11,959,875 $ 8,668,980 - 67 - Financial Statements 67 NATIONAL CREDIT UNION ADMINISTRATION COMMUNITY DEVELOPMENT REVOLVING LOAN FUND NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 1. NATURE OF ORGANIZATION The Community Development Revolving Loan Fund for Credit Unions (CDRLF) was established by an act of Congress (Public Law 96-123, November 20, 1979) to stimulate economic development in low-income communities. The National Credit Union Administration (NCUA) and the Community Services Association (CSA) jointly adopted Part 705 of NCUA Rules and Regulations, governing administration of the Fund, on February 28, 1980. Upon the dissolution of CSA in 1983, administration of CDRLF was transferred to the Department of Health and Human Services (HHS). Because HHS never promulgated final regulations governing the administration of CDRLF, the Fund was dormant. The Community Development Credit Union Transfer Act (Public Law 99-604, November 6, 1986) transferred CDRLF administration back to NCUA. The NCUA Board adopted amendments to Part 705 of NCUA Rules and Regulations on September 16, 1987, and began making loans/deposits to participating credit unions in 1990. The purpose of CDRLF is to stimulate economic activities in the communities served by low-income credit unions which will result in increased income, ownership, and employment opportunities for low-wealth residents, and other economic growth. The policy of NCUA is to revolve the loans to qualifying credit unions as often as practical in order to gain maximum impact on as many participating credit unions as possible. 2. SIGNIFICANT ACCOUNTING AND OPERATIONAL POLICIES Basis of Accounting — CDRLF reports its financial statements on the accrual basis of accounting. Cash Equivalents — The Federal Credit Union Act permits CDRLF to make investments in United States Government Treasury securities. All investments in 2007 and 2006 were cash equivalents and are stated at cost which approximates fair value. Cash equivalents are highly liquid investments with original maturities of three months or less. Allowance for Loan Losses — CDRLF records a provision for estimated loan losses. Loans considered to be uncollectible are charged to the allowance for loan losses. Management continually evaluates the adequacy of the allowance for loan losses based upon prevailing circumstances and an assessment of collectibility risk of the total loan portfolio. Accrual of interest is discontinued on non-performing loans when management believes collectibility is doubtful. At December 31, 2007 and 2006, there were no nonaccrual loans. Salary and Operating Expenses — NCUA provides certain general and administrative support to the CDRLF, including office space, salaries, and certain supplies. The value of these contributed services is not charged to CDRLF. Revenue Recognition — Appropriation revenue is recognized as the related technical assistance expense is recognized. Total appropriation revenues will differ from total technical assistance expenses because not all technical assistance is funded by appropriations. Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates. 3. GOVERNMENT REGULATIONS CDRLF is subject to various Federal laws and regulations. Assistance, which includes lending and technical assistance, is limited by Congress to a total of the $19,564,392 appropriated for CDRLF, plus accumulated earnings. Federally chartered and state-chartered credit unions may participate in CDRLF’s Community Loan Fund. Loans may only be made to low-income credit unions as defined by NCUA. 68 Financial Statements - 68 - NCUA Rules and Regulations Section 705.7 permit the classification of the loan in the participating credit union’s accounting records as either a note payable or a nonmember deposit. As a nonmember deposit, an amount not to exceed $100,000 per credit union is insured by the National Credit Union Share Insurance Fund (NCUSIF). The covered amount of loans recorded as nonmember deposits by participating credit unions insured by the NCUSIF totaled approximately $5,790,000 and $4,553,000 at December 31, 2007 and 2006, respectively. Under the CDRLF Loan Program, loans recorded in the credit union’s accounting records as notes payable may be collateralized. Loans are limited to a maximum amount of $300,000 per credit union. Loans issued after January 1, 2002, carry a fixed rate of 1%. Interest and principal are repaid on a semiannual basis beginning six months and one year, respectively, after the initial distribution of the loan. The maximum term of each loan is five years. Participating credit unions are required to match the value of the loan within one year of the date of approval of the loan. During the year ended December 31, 2005, appropriations for loans and technical assistance in the amount of $1,942,000 were received, of which $950,000 was for the Federal government’s fiscal year 2006–2007. Appropriation revenue in the amount of $793,600 was recognized in 2005, leaving a balance to be carried over into 2006 in the amount of $1,148,400. Of the amount, $198,400 was designated to be used as revolving fund capital and the remainder for technical assistance. In January 2006, $9,500 of the fiscal 2006–2007 appropriation was rescinded making a net appropriation of $940,500 for technical assistance for the Federal government’s fiscal years 2006– 2007. During the year ended December 31, 2007, appropriations for technical assistance in the amount of $940,500 were received for the Federal government’s fiscal years 2007–2008. The amount was designated to be used as operating appropriations for technical assistance and no amount was designated to be used as revolving fund capital. For the appropriations received for technical assistance for the Federal government’s fiscal year 2007–2008, $940,500 expires on September 30, 2008. Appropriations of $975,000 for technical assistance grants are proposed for fiscal 2008–2009. No. 108-199 Public Laws No. 109-115 No. 110-5 Total Activities by each appropriation: Operating appropriation received — 2005 Operating appropriation rescinded — 2006 Appropriation revenue recognized — 2006 Operating appropriation received — 2007 Appropriation revenue recognized — 2007 Balance — December 31, 2007 $198,400 $198,400 $950,000 (9,500) 892,636 $ 47,864 $ 940,500 940,500 - $1,148,400 (9,500) 892,636 940,500 940,500 $ 246,264 2006 $ 2007 Unexpended appropriations: Balance — beginning of the year Operational appropriations received (rescinded) Appropriation revenue recognized Balance of unexpended appropriations — end of year Revolving fund capital: Balance — beginning of the year Change in unexpended appropriations Balance of revolving fund capital — end of year 4. LOANS $ 1,141,442 940,500 (940,500) $ 1,141,442 $13,435,642 $13,435,642 $ 2,043,578 (9,500) (892,636) $ 1,141,442 $14,337,778 (902,136) $13,435,642 Loans outstanding at December 31, 2007 and 2006, are scheduled to be repaid during the following subsequent years: 2007 2006 2007 2008 $ 2,738,295 $1,828,997 1,655,690 - 69 - Financial Statements 69 2009 2010 2011 2012 Net loans outstanding Changes in the allowance for loan losses are summarized below: 3,075,324 2,775,356 2,657,106 2,045,984 $13,292,065 1,549,027 1,247,700 1,105,450 $7,386,864 2007 2006 Balance — beginning of year Reduction of provision for allowance for loan losses Balance — end of year 5. CONCENTRATION OF CREDIT RISK $ - $20,180 (20,180) $ - $ - At December 31, 2007 and 2006, there are no significant concentrations of credit risk in the loan portfolio. As discussed in Note 1, CDRLF provides loans to credit unions that serve predominantly low-income communities. 6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of Financial Accounting Standards Board Statement No. 107, Disclosures about Fair Value of Financial Instruments. The methods and assumptions used in estimating the fair value disclosures for financial instruments are as follows: Cash and Cash Equivalents — The carrying amounts for cash and cash equivalents approximate fair values. Interest Receivable and Accrued Technical Assistance — Such items are recorded at book values, which approximate the respective fair values. Loans — The fair value is estimated by discounting projected future cash flows using current market interest rates. For purposes of this calculation, the discount rate used was the prime interest rate plus two percent (5.26% and 6.76% at December 31, 2007 and 2006, respectively). The carrying amount and the estimated fair value of the CDRLF’s financial instruments are as follows: December 31, 2007 Carrying Estimated Amount Fair Value December 31, 2006 Carrying Estimated Amount Fair Value Assets: Cash and cash equivalents Loans Interest receivable Liabilities — accrued technical assistance $ 2,931,422 $13,292,065 $ 30,154 $ 2,931,422 $11,817,193 $ 30,154 $8,668,980 $7,386,864 $ 17,703 $8,668,980 $6,358,776 $ 17,703 $ 1,308,135 $ 1,308,135 $1,091,418 $1,091,418 It is the intent of CDRLF to hold its loans to maturity. CDRLF anticipates realizing the carrying amount in full. Fair value is less than the carrying amount because loans are made at less than market interest rates. ****** 70 Financial Statements - 70 - Financial Tables inSuRance fund ten-yeaR tRendS Fiscal year Income (in thousands) Regular premium-federal Regular premium-state Interest income Other income Total income Expenses (in thousands) Operating Insurance losses Losses on investment sales Total expenses Net income (in thousands) Data highlights Total equity (in millions) Equity as a percentage of shares in insured credit unions Contingent liabilities1 (in thousands) Contingent liabilities as a percentage of equity NCUSIF loss per $1,000 of insured shares Operating ratios Premium income Interest income Other income Operating expenses Insurance losses Total expenses Net income 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 — — $217,965 2,033 $219,998 — — $227,281 1,850 $229,131 — — $268,169 1,952 $270,121 — — $252,853 1,703 $254,556 — — — — $213,252 $151,175 1,226 760 $214,478 $151,935 — — $124,836 515 $125,351 — — — — $175,017 $264,895 645 1,326 $175,662 $266,221 — — $320,163 1,166 $321,329 $51,071 — — $51,071 $168,927 $58,392 — — $58,392 $170,739 $65,898 — — $65,898 $204,223 $90,505 — — $90,905 $164,051 $85,367 $85,026 12,513 38,043 — — $97,880 $123,068 $116,598 $28,867 $81,405 (3,424) — $77,981 $47,370 $80,473 $82,056 20,940 2,548 — — $101,413 $84,604 $74,249 $181,617 $79,218 186,397 — $265,615 $55,714 $3,811 1.30% $4,170 1.30% $4,628 1.30% $5,036 1.25% $5,607 1.27% $6,073 1.27% $6,359 1.27% $6,618 1.28% $6,978 1.30% $7,261 1.29% $556 0.0% $0.00 $1,281 0.0% $0.00 $2,362 0.0% $0.00 $2,217 0.0% $0.00 $0 0.0% $0.03 $0 0.0% $0.08 $0 0.0% $0.00 $3,475 0.1% $0.04 $443 0.0% $0.00 $5,100 0.1% $0.33 — 99.1% 0.9% 23.2% 0.0% 23.2% 76.8% — 99.2% 0.8% 25.5% 0.0% 25.5% 74.5% — 99.3% 0.7% 24.4% 0.0% 24.4% 75.6% — 99.3% 0.7% 35.5% 0.0% 35.6% 64.4% — 99.4% 0.6% 39.8% 5.8% 45.6% 54.4% — 99.5% 0.5% 56.0% 25.0% 81.0% 19.0% — 99.6% 0.4% 64.9% (2.7)% 62.2% 37.8% — 99.6% 0.4% 45.8% 11.9% 57.7% 42.3% — 99.5% 0.5% 30.8% 1.0% 31.8% 68.2% — 99.6% 0.4% 24.7% 58.0% 82.7% 17.3% Involuntary liquidations commenced Number 13 Share payouts (in thousands) $6,298 Share payouts as a percentage 0.002% of total insured shares 1 15 $5,403 0.002% 20 $10,393 0.003% 17 $16,290 0.004% 14 $40,003 0.009% 8 $ 7,774 0.002% 14 $88,746 0.018% 10 $27,137 0.005% 12 $19,799 0.004% 7 $195,325 0.035% Amounts for 2006 and 2007 represent the carrying value of guarantees as determined under FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, including indirect guarantees of indebtedness of others. 72 Financial Tables inSuRance fund ten-yeaR tRendS Fiscal year Mergers—fiscal year Assisted Unassisted 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 5 217 8 315 9 284 5 295 1 271 5 166 7 331 5 260 4 281 5 237 Section 208 (FCU Act) assistance to avoid liquidation (in thousands) Capital notes and other cash $1,466 $325 $146 advances outstanding Non-cash guaranty accounts $1,557 $4,516 $8,450 Number of active cases 12 16 17 Number of problem case insured credit unions (CODE 4 & 5) Number 308 338 202 Shares (millions) $3,181 $2,693 $1,483 Problem case shares as a 0.99% 0.80% 0.42% percentage of insured shares $2,050 $2,559 10 $0 $156 3 $0 $7,872 10 $0 $70 1 $0 $4,649 8 $15,000 $679 4 $0 $233,088 6 205 $1,731 0.43% 211 $2,901 0.66% 217 $3,568 0.74% 255 $4,350 0.87% 280 $5,771 1.12% 240 $5,160 0.96% 211 $5,300 0.94% December 31 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Shares in insured credit unions (in millions)1 Federal credit unions $191,328 $194,766 State credit unions 130,129 140,857 Total shares $321,457 $335,623 $195,871 157,996 $353,867 $217,112 185,574 $402,686 $238,912 202,552 $441,464 $262,420 215,056 $477,476 $276,395 222,573 $498,968 $285,713 229,909 $515,622 $296,469 237,724 $534,193 $308,917 251,915 $560,832 Number of member accounts in insured credit unions (in thousands) Federal credit unions 72,848 73,466 74,125 State credit unions 49,130 52,787 57,397 Total 121,978 126,253 131,522 Number of insured credit unions Federal credit unions 6,815 State credit unions 4,180 Total 10,995 Insured shares as a percentage 99.0% of all credit union shares State credit union portion of 40.5% insured shares 1 74,886 61,290 136,176 76,554 62,597 139,151 79,819 62,489 142,308 81,668 63,585 145,253 84,556 64,632 149,188 87,869 67,432 155,302 88,543 69,513 158,056 6,566 4,062 10,628 94.0% 42.0% 6,336 3,980 10,316 93.3% 44.7% 6,118 3,866 9,984 92.1% 46.1% 5,953 3,735 9,688 91.2% 45.9% 5,776 3,593 9,369 90.4% 45.0% 5,572 3,442 9,014 89.7% 44.6% 5,393 3,302 8,695 89.0% 44.4% 5,189 3,173 8,362 88.9% 44.5% 5,036 3,065 8,101 88.7% 44.9% Insured shares in natural person credit unions. Financial Tables 73 fedeRal cRedit union ten-yeaR SummaRy Federal credit unions December 31 (dollar amounts in millions) December Number of credit unions Number of members Assets Loans outstanding Shares Reserves1 Undivided earnings Gross income Operating expenses Dividends Reserve transfers Net income2 1998 6,815 43,864,851 $231,904 144,849 202,651 9,837 15,468 18,137 8,241 7,760 211 $2,081 1999 6,566 44,076,428 $239,316 155,172 207,614 10,314 16,546 18,530 8,551 7,698 323 $2,184 2000 6,336 43,883,106 $242,881 163,851 210,188 10,837 17,279 19,456 8,721 8,120 $2,470 2001 6,118 43,816,877 $270,125 170,326 235,202 11,339 18,596 20,042 9,287 8,277 $2,436 2002 5,953 44,610,949 $301,238 181,767 261,819 12,227 20,855 19,676 10,158 6,369 $3,082 2003 5,776 46,155,018 $336,612 202,898 291,485 12,881 23,526 19,764 11,239 5,199 $3,273 2004 5,572 46,857,723 $358,704 223,878 308,318 13,342 26,054 20,302 12,128 4,683 $3,351 2005 5,393 47,913,908 $377,826 249,521 321,831 13,368 28,855 22,796 13,308 5,930 $3,295 2006 5,189 48,254,366 394,130 270,418 333,914 14,096 31,580 26,137 13,900 8,398 $3,419 2007 5,036 48,474,331 417,579 289,170 349,101 14,580 33,368 29,304 13,523 10,588 $2,910 Percent change Total assets Loans outstanding Shares Reserves1 Undivided earnings Gross income Operating expenses Dividends Net income2 7.8% 3.4 7.9 5.0 7.7 4.2 5.7 4.5 -1.5 3.2% 7.1 2.4 4.8 7.0 2.2 3.8 -0.8 5.0 1.5% 5.6 1.2 5.1 4.4 5.0 2.0 5.5 13.1 11.2% 4.0 11.9 4.6 7.6 3.0 6.5 1.9 -1.4 11.5% 6.7 11.3 7.8 12.1 -1.8 9.4 -23.1 26.5 11.7% 11.6 11.3 5.3 12.8 0.4 10.6 -18.4 6.2 6.6% 10.3 5.8 3.6 10.7 2.7 7.9 -9.9 2.4 5.3% 11.5 4.4 0.2 10.8 12.3 9.7 26.6 -1.7 4.3% 8.4 3.6 5.4 9.4 14.7 4.4 41.6 3.8 5.9% 6.9 4.5 3.4 5.7 12.1 -2.7 26.1 -14.9 Significant ratios Reserves to assets Reserves and undivided earnings to assets Reserves to loans Loans to shares Operating expenses to gross income Salaries and benefits to gross income Dividends to gross income Yield on average assets Cost of funds to average assets Gross spread Net income divided by gross income2 Yield on average loans Yield on average investments3 1 2 4.2% 10.9 6.8 71.5 45.4 19.7 42.8 8.1 3.5 4.6 11.5 8.6 5.7 4.3% 11.2 6.6 74.7 46.1 20.5 41.5 7.9 3.3 4.6 11.8 8.3 5.3 4.5% 11.6 6.6 78.0 44.8 20.2 41.7 8.3 3.5 4.8 12.7 8.5 6.4 4.2% 11.1 6.7 72.4 46.3 21.0 41.3 7.8 3.3 4.5 12.2 8.2 4.9 4.1% 11.0 6.7 69.4 51.6 23.3 32.4 6.9 2.3 4.6 14.8 7.7 3.5 3.8% 10.8 6.3 69.6 56.9 25.9 26.3 6.2 1.7 4.5 16.6 6.9 2.7 3.7% 11.0 6.0 72.6 59.7 27.0 23.1 5.8 1.4 4.4 16.5 6.3 2.6 3.5% 11.2 5.4 77.5 58.41 25.8 26.0 6.2 1.7 4.5 14.5 6.2 3.2 3.6% 11.6 5.2 81.0 48.6 24.2 32.1 5.5 2.3 4.5 13.1 6.5 4.0 3.5% 11.5 5.0 82.8 46.3 23.1 36.1 7.2 2.8 4.5 9.9 6.7 4.7 Does not include the allowance for loan losses Net income prior to reserve transfers 3 Starting in 2000, investments includes cash on deposit and cash equivalents 74 Financial Tables fedeRally inSuRed State-chaRteRed cRedit union ten-yeaR SummaRy Federally insured state-chartered credit unions December 31 (dollar amounts in millions) December Number of credit unions Number of members Assets Loans outstanding Shares Reserves1 Undivided earnings Gross income Operating expenses Dividends Reserve transfers Net income2 1998 4,180 29,673,998 $156,787 100,890 137,347 7,125 9,876 12,309 5,548 4,229 161 $1,424 1999 4,062 31,307,907 $172,086 116,366 149,305 7,946 11,060 13,413 6,165 4,315 190 $1,566 2000 3,980 33,704,772 $195,363 137,485 169,053 9,120 12,830 15,714 7,024 5,256 2001 3,866 35,532,391 $231,280 152,014 201,807 10,266 14,563 17,385 8,053 5,547 2002 3,735 36,336,258 $255,838 160,881 222,377 11,105 16,229 17,075 8,990 4,020 2003 3,593 36,273,168 $273,572 173,236 236,856 10,895 18,231 16,378 9,629 3,123 2004 3,442 36,710,301 $288,296 190,377 247,804 10,997 20,202 16,538 10,250 2,800 2005 3,302 36,896,076 $300,871 208,734 255,588 11,117 21,943 18,164 10,806 3,557 2006 3,173 37,499,194 315,817 223,917 267,274 11,474 24,337 20,936 11,348 5,084 2007 3,065 38,363,147 335,885 237,755 283,298 11,763 26,106 23,703 11,278 6,277 $1,859 $2,060 $2,584 $2,508 $2,439 $2,363 $2,302 $1,828 Percent change Total assets Loans outstanding Shares Reserves1 Undivided earnings Gross income Operating expenses Dividends Net income2 15.2% 9.5 15.1 10.9 12.5 10.6 12.3 11.6 3.1 9.7% 15.3 8.7 11.5 12.0 9.0 11.1 2.0 10.0 13.5% 18.1 13.2 14.8 16.0 17.2 13.9 21.8 18.7 18.4% 10.6 19.4 12.6 13.5 10.6 14.6 5.5 10.8 10.6% 5.8 10.2 8.2 11.4 -1.8 11.6 -27.5 25.5 6.9% 7.7 6.5 -1.9 12.3 -4.1 7.1 -22.3 -2.9 5.4% 9.9 4.6 0.9 10.8 1.0 6.4 -10.3 -2.8 4.4% 9.6 3.1 1.1 8.6 9.8 5.4 27.0 -3.1 5.0% 7.3 4.6 3.2 10.9 15.3 5.0 42.9 -2.6 6.4% 6.2 6.0 2.5 7.3 13.2 -0.6 23.5 -20.6 Significant ratios Reserves to assets Reserves and undivided earnings to assets Reserves to loans Loans to shares Operating expenses to gross income Salaries and benefits to gross income Dividends to gross income Yield on average assets Cost of funds to average assets Gross spread Net income divided by gross income2 Yield on average loans Yield on average investments3 1 2 4.5% 4.6% 4.7% 4.4% 4.3% 4.0% 3.8% 3.7% 3.6% 3.5% 10.8 7.1 73.5 45.1 19.4 34.3 8.4 3.7 4.7 11.6 8.8 5.8 11.0 6.8 77.9 46.0 20.2 32.2 8.2 3.5 4.7 11.7 8.4 5.4 11.2 6.6 81.3 44.7 19.9 33.4 8.3 3.6 4.7 11.8 8.5 6.3 10.7 6.8 75.3 46.3 20.6 31.9 8.2 3.5 4.7 11.8 8.4 5.1 10.7 6.9 72.3 52.7 23.2 23.5 7.0 2.3 4.7 15.1 7.6 3.4 10.6 6.3 73.1 58.8 26.2 19.1 6.2 1.7 4.5 15.3 6.6 2.7 10.8 5.8 76.8 62.0 27.8 16.9 5.9 1.4 4.5 14.7 6.1 2.6 11.0 5.3 81.7 59.5 26.7 19.6 6.2 1.7 4.4 13.0 6.0 3.2 11.3 5.1 83.8 54.2 24.9 24.3 5.5 2.4 4.4 11.0 6.4 3.9 11.3 4.9 83.9 47.6 23.9 26.5 7.3 2.8 4.5 7.7 6.7 4.8 Does not include the allowance for loan losses Net income prior to reserve transfers 3 Starting in 2000 investments includes cash on deposit and cash equivalents Financial Tables 75 hiStoRical fedeRal cRedit union data Historical data for federal credit unions December 31, 1935 to 1970 Inactive credit unions 134 107 114 99 113 129 151 332 326 233 202 204 168 166 151 144 188 238 278 359 369 384 467 503 516 469 509 465 452 386 435 420 495 438 483 578 Active credit unions 772 1,751 2,313 2,760 3,182 3,756 4,228 4,145 3,938 3,815 3,757 3,761 3,845 4,058 4,495 4,984 5,398 5,925 6,578 7,227 7,806 8,350 8,735 9,030 9,447 9,905 10,271 10,632 10,955 11,278 11,543 11,941 12,210 12,584 12,921 12,977 (Amounts in thousands of dollars) Members 119,420 309,700 483,920 632,050 850,770 1,127,940 1,408,880 1,356,940 1,311,620 1,306,000 1,216,625 1,302,132 1,445,915 1,628,339 1,819,606 2,126,823 2,463,898 2,853,241 3,255,422 3,598,790 4,032,220 4,502,210 4,897,689 5,209,912 5,643,248 6,087,378 6,542,603 7,007,630 7,499,747 8,092,030 8,640,560 9,271,967 9,873,777 10,508,504 11,301,805 11,966,181 Assets $ 2,372 9,158 19,265 29,629 47,811 72,530 106,052 119,591 127,329 144,365 153,103 173,166 210,376 258,412 316,363 405,835 504,715 662,409 854,232 1,033,179 1,267,427 1,529,202 1,788,768 2,034,866 2,352,813 2,669,734 3,028,294 3,429,805 3,916,541 4,559,438 5,165,807 5,668,941 6,208,158 6,902,175 7,793,573 8,860,612 Shares $ 2,228 8,511 17,650 26,876 43,327 65,806 97,209 109,822 117,339 133,677 140,614 159,718 192,410 235,008 285,001 361,925 457,402 597,374 767,571 931,407 1,135,165 1,366,258 1,589,191 1,812,017 2,075,055 2,344,337 2,673,488 3,020,274 3,452,615 4,017,393 4,538,461 4,944,033 5,420,633 5,986,181 6,713,385 7,628,805 Loans outstanding $ 1,834 7,344 15,695 23,830 37,673 55,818 69,485 43,053 35,376 34,438 35,155 56,801 91,372 137,642 186,218 263,736 299,756 415,062 573,974 681,970 863,042 1,049,189 1,257,319 1,379,724 1,666,526 2,021,463 2,245,223 2,560,722 2,911,159 3,349,068 3,864,809 4,323,943 4,677,480 5,398,052 6,328,720 6,969,006 Year 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 Charters issued 828 956 638 515 529 666 583 187 108 69 96 157 207 341 523 565 533 692 825 852 777 741 662 586 700 685 671 601 622 580 584 701 636 662 705 563 Charters cancelled Net Total change outstanding 828 906 1,858 2,427 2,859 3,295 3,855 4,379 4,477 4,264 4,048 3,959 3,965 4,013 4,224 4,646 5,128 5,586 6,163 6,856 7,586 8,175 8,734 9,202 9,533 9,963 10,374 10,780 11,097 11,407 11,664 11,978 12,361 12,705 13,022 13,404 13,555 4 69 83 93 76 89 89 321 285 185 151 159 130 101 83 75 115 132 122 188 182 194 255 270 274 265 284 312 323 270 318 292 345 323 412 952 569 432 436 590 494 98 - 213 - 216 - 89 6 48 211 422 482 458 577 693 730 589 559 468 331 430 411 406 317 310 257 324 383 344 317 382 151 Data for 1935-44 are partly estimated. 76 Financial Tables hiStoRical fedeRal cRedit union data Historical data for federal credit unions December 31, 1971 to 2007 Inactive credit unions 777 425 286 224 274 221 250 291 262 362 398 294 320 219 122 107 45 172 185 118 123 128 132 145 148 150 13 1 0 7 11 6 12 54 21 20 2 Active credit unions 12,717 12,708 12,688 12,748 12,737 12,757 12,750 12,759 12,738 12,440 11,969 11,631 10,976 10,548 10,125 9,758 9,401 9,118 8,821 8,511 8,229 7,916 7,696 7,498 7,329 7,152 6,981 6,815 6,566 6,336 6,118 5,953 5,776 5,572 5,393 5,189 5,036 (Amounts in thousands of dollars) Members 12,702,135 13,572,312 14,665,890 15,870,434 17,066,428 18,623,862 20,426,661 23,259,284 24,789,647 24,519,087 25,459,059 26,114,649 26,798,799 28,191,922 29,578,808 31,041,142 32,066,542 34,438,304 35,612,317 36,241,607 37,080,854 38,205,128 39,755,596 40,837,392 42,162,627 43,545,541 43,500,553 43,864,851 44,076,428 43,883,106 43,816,877 44,610,949 46,153,243 46,857,723 47,913,908 48,254,366 48,474,331 Assets 10,533,740 12,513,621 14,568,736 16,714,673 20,208,536 24,395,896 29,563,681 34,760,098 36,467,850 40,091,855 41,905,413 45,482,943 54,481,827 63,656,321 78,187,651 95,483,828 105,189,725 114,564,579 120,666,414 130,072,955 143,939,504 162,543,659 172,854,187 182,528,895 193,781,391 206,692,540 215,097,395 231,904,308 239,315,693 242,881,164 270,125,345 301,238,242 336,611,886 358,704,157 377,826,822 394,130,999 417,578,758 Shares 9,191,182 10,956,007 12,597,607 14,370,744 17,529,823 21,130,293 25,576,017 29,802,504 31,831,400 36,263,343 37,788,699 41,340,911 49,889,313 57,929,124 71,616,202 87,953,642 96,346,488 104,431,487 109,652,600 117,891,940 130,163,749 146,078,403 153,505,799 160,225,678 170,300,445 180,964,338 187,816,918 202,650,793 207,613,549 210,187,670 235,202,500 261,819,003 291,484,763 308,318,116 321,830,899 333,914,263 349,100,902 Loans outstanding 8,071,201 9,424,180 11,109,015 12,729,653 14,868,840 18,311,204 22,633,860 27,686,584 28,547,097 26,350,277 27,203,672 28,184,280 33,200,715 42,133,018 48,240,770 55,304,682 64,104,411 73,766,200 80,272,306 83,029,348 84,150,334 87,632,808 94,640,348 110,089,530 120,514,044 134,120,610 140,099,926 144,849,109 155,171,735 163,850,918 170,325,562 181,766,655 202,898,454 223,878,376 249,520,685 270,418,116 289,169,600 Year 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Charters issued 400 311 364 367 373 354 337 348 286 170 119 114 107 135 55 59 41 45 23 33 14 33 42 39 28 14 17 8 17 12 14 21 28 22 19 17 14 Charters cancelled 461 672 523 369 334 387 315 298 336 368 554 556 736 664 575 441 460 201 307 410 291 341 258 224 194 189 179 174 265 235 228 180 193 172 177 201 165 Net Total change outstanding -61 -361 -159 -2 39 -33 22 50 -50 -198 -435 -442 -629 -529 -520 -382 -419 -156 -284 -377 -277 -308 -216 -185 -166 -175 -162 -166 -248 -223 -214 -159 -165 -150 -158 -184 -151 13,494 13,133 12,974 12,972 13,011 12,978 13,000 13,050 13,000 12,802 12,367 11,925 11,296 10,767 10,247 9,865 9,446 9,290 9,006 8,629 8,352 8,044 7,828 7,643 7,477 7,302 6,994 6,816 6,566 6,343 6,129 5,959 5,788 5,626 5,414 5,209 5,038 Financial Tables 77 Who’s Who at NCUA Seated are Len Skiles and Kathy Sachen-Gute. Standing are, from the left, Kent Buckham, Mike Barton, Tawana James, Bob Fenner, Dave Marquis, Owen Cole, Doug Verner, Mary Ann Woodson, and Bill DeSarno. JoAnn M. Johnson Chairman Rodney E. Hood Vice Chairman Christiane Gigi Hyland Board Member J. Leonard Skiles Executive Director Mary F. Rupp Secretary of the Board Peter Barrett Senior Advisor to the Chairman Carlton L. Hoskins Senior Policy Advisor to Vice Chairman Hood Gary J. Kohn Senior Policy Advisor to Board Member Hyland Robert M. Fenner General Counsel John J. McKechnie III Director, Public & Congressional Affairs David M. Marquis Director, Office of Examination and Insurance Mary Ann Woodson Chief Financial Officer J. Owen Cole, Jr. Director, Office of Capital Markets and Planning Central Liquidity Facility President Kathy Sachen-Gute Director, Office of Human Resources Tawana Y. James Director, Office of Small Credit Union Initiatives Kent Buckham Director, Office of Corporate Credit Unions Doug Verner Chief Information Officer Mike Barton President, Asset Management & Assistance Center William DeSarno Inspector General 78 NCUA Officers and Locations Regional Offices and Directors From the left are Alonzo Swann III, Melinda Love, Mark Treichel, Jane Walters, and Keith Morton. Region I—Albany Director Mark A. Treichel 9 Washington Square Washington Avenue Extension Albany, New York 12205 Telephone: 518-862-7400 Fax: 518-862-7420 region1@ncua.gov Region II—Capital Director Jane Walters 1775 Duke Street Suite 4206 Alexandria, VA 22314-3437 Telephone: 703-519-4600 Fax: 703-519-4620 region2@ncua.gov Region III—Atlanta Director Alonzo A. Swann III 7000 Central Parkway Suite 1600 Atlanta, GA 30328 Telephone: 678-443-3000 Fax: 678-443-3020 region3@ncua.gov Region IV—Austin Director C. Keith Morton 4807 Spicewood Springs Road Suite 5200 Austin, TX 78759-8490 Telephone: 512-342-5600 Fax: 512-342-5620 region4@ncua.gov Region V—Tempe Director Melinda Love 1230 West Washington Street Suite 301 Tempe, AZ 85281 Telephone: 602-302-6000 Fax: 602-302-6024 region5@ncua.gov Asset Management & Assistance Center President Mike Barton 4807 Spicewood Springs Road Suite 5100 Austin, TX 78759-8490 Telephone: 512-231-7900 Fax: 512-231-7920 amacmail@ncua.gov NCUA Officers and Locations 79 Regional Offices Washington Maine Minnesota Montana Oregon North Dakota VT NH Wisconsin South Dakota New York Michigan Iowa Pennsylvania NJ Illinois Indiana Colorado Kansas Ohio West Virginia MD D.C. Virginia Del Idaho Wyoming Mass Conn RI Nevada Utah Nebraska California Missouri Kentucky North Carolina Tennessee Arizona New Mexico Oklahoma Arkansas Mississippi Alabama Texas Guam Louisiana South Carolina Georgia Puerto Rico Virgin Islands Alaska Hawaii Florida region 1–albany region 2–capital region 3–atlanta region 4–austin region 5–tempe 80 NCUA Officers and Locations Contact Information General information TDD: Office of the Board Publications GC fraud hotline Credit union investments Technology assistance Report improper or illegal activities NCUA Website 703-518-6330 703-518-6332 703-518-6300 703-518-6340 1-800-827-9650 703-518-6550 1-800-755-5999 703-518-6370 1-800-827-3255 703-518-6487 1-800-778-4806 703-518-6357 http://www.ncua.gov NCUA Public & Congressional Affairs 703-518-6330 Thank you for your interest in the National Credit Union Administration 2007 Annual Report. Credit unions can secure one free copy of the NCUA 2007 Annual Report by contacting NCUA Publications at 703-518-6340 or by completing and submitting the NCUA Publication List subscription form online at http://www.ncua.gov/Publications/pub_avail/pub_avail.pdf. Follow the same procedure to purchase the annual report. The cost is $8. The report is also available online at http://www.ncua.gov/ReportsAndPlans/annualrpt/annualrpt.html. Please send your comments and suggestions to pacamail@ncua.gov. National Credit Union Administration 1775 Duke Street Alexandria, VA 22314-3428 703-518-6300 http://www.ncua.gov National Credit Union Administration Alexandria, VA 22314-3428 OffiCiAl BUsiNess FIRST CLASS MAIL POSTAGE AND FEES PAID NCUA PERMIT NO. G-88 Penalty for Private Use, $300 FIRST CLASS MAIL POSTAGE AND FEES PAID NCUA PERMIT NO. G-88